Income Taxes
| Provision (benefit) for income taxes |
Effective tax rate | |||||||
| Years Ended December 31, | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||
| (In millions) | (In percentages) | |||||||
| Continuing operations | $ | 82.7 | 49.5 | 40.6 | 40.5% | 46.7% | 32.6% | |
| Discontinued operations | 267.4 | (3.7) | 32.9 | 35.6% | (3.6)% | 39.7% | ||
Overview
The Company's effective tax rate has varied in the past three years from the statutory U.S. federal rate due to various factors, including:
- changes in valuation allowances,
- changes in the geographical mix of earnings,
- timing of benefit recognition for uncertain tax positions,
- state income taxes,
- repatriation of earnings in 2005, and
- the initial recognition of a net deferred tax benefit in 2005 recorded as a result of the decision to sell the stock of BAX Global.
The Company establishes or reverses valuation allowances for deferred tax assets depending on all available information including historical and expected future operating performance of its subsidiaries. Changes in judgment about the future realization of deferred tax assets can result in significant adjustments to the valuation allowances. Based on the Company's historical and future expected taxable earnings, management believes it is more likely than not that the Company will realize the benefit of the deferred tax assets, net of valuation allowances.
The Company currently believes its effective income tax rate in 2007 will be approximately 39% to 41%. The actual 2007 tax rate could be materially different from the Company's estimate.
Continuing Operations
2006
The effective income tax rate on continuing operations in 2006 was higher than the 35% U.S. statutory tax rate primarily due to $6.7 million of state income tax expense and an $8.4 million net increase in the valuation allowance for non-U.S. deferred tax assets, primarily related to European operations.
2005
The effective income tax rate on continuing operations in 2005 was higher than the 35% U.S. statutory tax rate primarily as a result of new valuation allowances in various countries in South America and Europe, the effects of losses in tax jurisdictions for which the Company does not record a tax benefit for such losses and $3 million of tax expense related to the repatriation of non-U.S. earnings. This was partially offset by the favorable resolution of contingent state income tax matters.
2004
The effective income tax rate on continuing operations in 2004 was lower than the U.S. statutory tax rate primarily as a result of lower foreign income taxes, partially offset by state income taxes and the recording of income tax expense of $2.1 million for net valuation allowance adjustments.
Discontinued Operations
Discontinued operations include the tax provision or benefit associated with the Company's BAX Global and other former businesses, and the resolution of associated contingent tax matters.
2006
The effective tax rate in 2006 approximated the 35% U.S. statutory tax rate.
2005
The effective tax rate in 2005 was lower than the 35% U.S. statutory tax rate primarily as a result of an income tax benefit of $27.4 million recorded upon the resolution of income tax matters with the Internal Revenue Service related to the former natural resource business. In addition, the Company recognized a $7.0 million net deferred tax benefit for the excess of the tax basis over the carrying value of the Company's investment in BAX Global as a result of the Company's decision to sell BAX Global's stock.
2004
The effective tax rate in 2004 was higher than the U.S. statutory tax rate due to state income tax expense.
Other
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.
