 |
| note 16 |
| INCOME TAXES |
The components
of Income Before Provision for Income Taxes, Discontinued
Operations and Cumulative Effect of Accounting Change are
as follows: |
|
| Years
Ended December 31, |
|
2005 |
|
|
|
2004 |
|
|
|
2003 |
|
|
 |
|
| Domestic |
$ |
9,183 |
|
|
$ |
7,802 |
|
|
$ |
2,892 |
|
|
| Foreign |
|
1,424 |
|
|
|
2,310 |
|
|
|
1,781 |
|
|
|
| |
$ |
10,607 |
|
|
$ |
10,112 |
|
|
$ |
4,673 |
|
|
 |
|
| The
components of the provision for income taxes from continuing
operations are as follows: |
|
| Years
Ended December 31, |
|
2005 |
|
|
|
2004 |
|
|
|
2003 |
|
|
|
|
| Current |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
$ |
3,355 |
|
|
$ |
305 |
|
|
$ |
48 |
|
|
| Foreign |
|
195 |
|
|
|
369 |
|
|
|
72 |
|
|
| State
and local |
|
719 |
|
|
|
335 |
|
|
|
267 |
|
|
|
| |
|
4,269 |
|
|
|
1,009 |
|
|
|
387 |
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
|
(829 |
) |
|
|
1,694 |
|
|
|
820 |
|
|
| Foreign |
|
(37 |
) |
|
|
33 |
|
|
|
18 |
|
|
| State
and local |
|
(186 |
) |
|
|
123 |
|
|
|
(2 |
) |
|
|
| |
|
(1,052 |
) |
|
|
1,850 |
|
|
|
836 |
|
|
|
| Investment
tax credits |
|
(7 |
) |
|
|
(8 |
) |
|
|
(10 |
) |
|
|
| Total
income tax expense |
$ |
3,210 |
|
|
$ |
2,851 |
|
|
$ |
1,213 |
|
|
|
|
| The
following table shows the principal reasons for the difference
between the effective income tax rate and the statutory federal
income tax rate: |
| Years
Ended December 31, |
2005 |
|
|
|
2004 |
|
|
|
2003 |
|
|
|
|
| Statutory
federal income tax rate |
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
| State
and local income tax, net of federal tax benefits
|
3.3 |
|
|
|
2.9 |
|
|
|
3.7 |
|
|
| Tax benefits
from investment losses |
(3.6 |
) |
|
|
(2.9 |
) |
|
|
(3.1 |
) |
|
| Equity
in earnings from unconsolidated businesses |
(2.8 |
) |
|
|
(6.4 |
) |
|
|
(10.6 |
) |
|
| Other,
net |
(1.6 |
) |
|
|
(.4 |
) |
|
|
1.0 |
|
|
|
| Effective
income tax rate |
30.3 |
% |
|
|
28.2 |
% |
|
|
26.0 |
% |
|
|
|
During
2005, we recorded a tax benefit of $336 million in connection
with capital gains and prior year investment losses. As a
result of the capital gain realized in 2005 in connection
with the sale of our Hawaii businesses, we recorded a tax
benefit of $242 million related to prior year investment losses.
Also during 2005, we recorded a net tax provision of $206
million related to the repatriation of foreign earnings under
the provisions of the American Jobs Creation Act of 2004,
which provides for a favorable federal income tax rate in
connection with the repatriation of foreign earnings, provided
the criteria described in the law is met. Two of Verizon’s
foreign investments repatriated earnings resulting in income
taxes of $332 million, partially offset by a tax benefit of
$126 million.
The favorable impact on our 2004 and 2003 effective income
tax rates was primarily driven by increased earnings from
our unconsolidated businesses and tax benefits from valuation
allowance reversals.
Deferred taxes arise because of differences in the book and
tax bases of certain assets and liabilities. Significant components
of deferred tax liabilities (assets) are shown in the following
table: |
|
| At December
31, |
|
2005 |
|
|
|
2004 |
|
|
|
|
| Depreciation |
$ |
9,445 |
|
|
$ |
10,307 |
|
|
| Employee
benefits |
|
(1,971 |
) |
|
|
(1,704 |
) |
|
| Leasing
activity |
|
3,001 |
|
|
|
3,212 |
|
|
| Loss
on investments |
|
(369 |
) |
|
|
(752 |
) |
|
| Wireless
joint venture including wireless licenses |
|
11,786 |
|
|
|
10,382 |
|
|
| Uncollectible
accounts receivable |
|
(406 |
) |
|
|
(501 |
) |
|
| Other
– net |
|
(505 |
) |
|
|
(837 |
) |
|
|
| |
|
20,981 |
|
|
|
20,107 |
|
|
| Valuation
allowance |
|
815 |
|
|
|
1,217 |
|
|
|
| Net deferred
tax liability |
$ |
21,796 |
|
|
$ |
21,324 |
|
|
|
|
| Net long-term
deferred tax liabilities |
$ |
22,411 |
|
|
$ |
22,532 |
|
|
Less
net current deferred tax assets (in Prepaid Expenses
and Other)
|
|
511 |
|
|
|
1,076 |
|
|
| Less
deferred investment tax credit |
|
104 |
|
|
|
132 |
|
|
|
| Net
deferred tax liability |
$ |
21,796 |
|
|
$ |
21,324 |
|
|
|
|
At
December 31, 2005, undistributed earnings of our foreign subsidiaries
amounted to approximately $3.0 billion. Deferred income taxes
are not provided on these earnings as it is intended that
the earnings are indefinitely invested outside of the U.S.
It is not practical to estimate the amount of taxes that might
be payable upon the remittance of such earnings.
The valuation allowance primarily represents the tax benefits
of certain state net operating loss carry forwards, capital
loss carry forwards and other deferred tax assets which may
expire without being utilized. During 2005, the valuation
allowance decreased $402 million. This decrease primarily
relates to the valuation allowance reversals relating to utilizing
prior year investment losses to offset the capital gains realized
on the sale of Hawaii businesses. |
|
