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| note 17 |
| 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, |
|
2004 |
|
|
|
2003 |
|
|
|
2002 |
|
|
 |
|
| Domestic |
$ |
7,802 |
|
|
$ |
2,892 |
|
|
$ |
7,358 |
|
|
| Foreign |
|
2,310 |
|
|
|
1,781 |
|
|
|
(1,228 |
) |
|
|
| |
$ |
10,112 |
|
|
$ |
4,673 |
|
|
$ |
6,130 |
|
|
 |
|
| The
components of the provision for income taxes from continuing
operations are as follows: |
|
| Years
Ended December 31, |
|
2004 |
|
|
|
2003 |
|
|
|
2002 |
|
|
|
|
| Current |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
$ |
305 |
|
|
$ |
48 |
|
|
$ |
(706 |
) |
|
| Foreign |
|
369 |
|
|
|
72 |
|
|
|
44 |
|
|
| State
and local |
|
335 |
|
|
|
267 |
|
|
|
495 |
|
|
|
|
|
|
1,009 |
|
|
|
387 |
|
|
|
(167 |
) |
|
|
| Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
|
1,694 |
|
|
|
820 |
|
|
|
1,478 |
|
|
| Foreign |
|
33 |
|
|
|
18 |
|
|
|
(13 |
) |
|
| State
and local |
|
123 |
|
|
|
(2 |
) |
|
|
256 |
|
|
|
| |
|
1,850 |
|
|
|
836 |
|
|
|
1,721 |
|
|
|
| Investment
tax credits |
|
(8 |
) |
|
|
(10 |
) |
|
|
(15 |
) |
|
|
| Total
income tax expense |
$ |
2,851 |
|
|
$ |
1,213 |
|
|
$ |
1,539 |
|
|
|
|
| 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, |
2004 |
|
|
|
2003 |
|
|
|
2002 |
|
|
|
|
| Statutory
federal income tax rate |
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
| State
and local income tax, net of federal tax benefits
|
2.9 |
|
|
|
3.7 |
|
|
|
8.0 |
|
|
| Tax
benefits from investment losses |
(2.9 |
) |
|
|
(3.1 |
) |
|
|
(17.6 |
) |
|
| Equity
in earnings (loss) from unconsolidated businesses |
(6.4 |
) |
|
|
(10.6 |
) |
|
|
(3.2 |
) |
|
| Other,
net |
(.4 |
) |
|
|
1.0 |
|
|
|
2.9 |
|
|
|
| Effective
income tax rate |
28.2 |
% |
|
|
26.0 |
% |
|
|
25.1 |
% |
|
|
|
The
favorable impact on our 2004 and 2003 effective income
tax rates was primarily driven by increased earnings
from our unconsolidated businesses. The effective income
tax rate in 2002 was favorably impacted by tax benefits
recognized in connection with losses resulting from
the other than temporary decline in market value of
our investments.
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, |
|
2004 |
|
|
|
2003 |
|
|
|
|
| Depreciation |
$ |
10,551 |
|
|
$ |
9,722 |
|
|
| Employee
benefits |
|
(1,704 |
) |
|
|
(1,578 |
) |
|
| Leasing
activity |
|
2,968 |
|
|
|
3,064 |
|
|
| Loss
on investments |
|
(752 |
) |
|
|
(1,004 |
) |
|
| Wireless
joint venture including wireless licenses |
|
10,382 |
|
|
|
9,977 |
|
|
| Uncollectible
accounts receivable |
|
(501 |
) |
|
|
(740 |
) |
|
| Other
– net |
|
(837 |
) |
|
|
(1,250 |
) |
|
|
| |
|
20,107 |
|
|
|
18,191 |
|
|
| Valuation
allowance |
|
1,217 |
|
|
|
1,463 |
|
|
|
| Net
deferred tax liability |
$ |
21,324 |
|
|
$ |
19,654 |
|
|
|
|
| Net
long-term deferred tax liabilities |
$ |
22,532 |
|
|
$ |
21,704 |
|
|
Less
net current deferred tax assets (in Prepaid
Expenses and Other)
|
|
1,076 |
|
|
|
1,905 |
|
|
| Less
deferred investment tax credit |
|
132 |
|
|
|
145 |
|
|
|
|
Net deferred tax liability |
$ |
21,324 |
|
|
$ |
19,654 |
|
|
|
|
At
December 31, 2004, undistributed earnings of our foreign
subsidiaries amounted to approximately $5.1 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.
In the fourth quarter of 2004, the American Jobs Creation
Act of 2004 was enacted, which provides a special one-time
dividends received deduction on the repatriation of
foreign dividends, provided the criteria outlined in
the tax law is met. Detailed guidance was subsequently
issued by the Internal Revenue Service (IRS) on January
13, 2005. In December 2004, the FASB issued FASB Staff
Position 109-2, which provided interpretative guidance
in connection with accounting for the impact of the
American Jobs Creation Act of 2004, due to the lack
of clarification of the provisions within the American
Jobs Creation Act of 2004 and the timing of enactment.
Given the complexities of determining not only the effect
of the newly issued IRS guidance but also the local
laws and applicable shareholder agreements in several
countries that govern dividends that may be distributed
from these foreign subsidiaries, Verizon is still evaluating
the impact of the American Jobs Creation Act of 2004
on its plan of reinvesting or repatriating foreign earnings,
and is unable to reasonably estimate the income tax
effect or range of income tax effects. Consequently,
no deferred tax liabilities were recorded as of December
31, 2004 related to the undistributed earnings of these
companies as a result of the American Jobs Creation
Act of 2004. Verizon expects to complete this evaluation
during the first half of 2005.
The valuation allowance primarily represents the tax
benefits of certain state net operating loss carry forwards
and other deferred tax assets which may expire without
being utilized. During 2004, the valuation allowance
decreased $246 million. This decrease primarily relates
to the actual sale of foreign investments at a gain
for which a valuation allowance was previously booked. |
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