BEC » Topics » Income Taxes

These excerpts taken from the BEC 10-Q filed May 7, 2009.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective tax rate expected to be applicable for the full year. The estimated full year’s effective tax rate is used to determine the income tax rate for each applicable interim reporting period. The tax effect of any tax law changes, final settlement of examinations with tax authorities and certain other events are reflected as discrete items in the interim reporting period in which they occur.

 

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The effective tax rate for the quarter ended March 31, 2009 was a benefit of 13.2%. The effective tax rate was impacted by discrete events which reduced tax expense for the quarter ended March 31, 2009 by a net $7.8 million. Discrete events occurring in the quarter ended March 31, 2009 that reduced tax expense by $11.2 million, consisted primarily of settlement of tax audits of prior years, changes in judgment related to uncertain tax positions in prior years, and changes to various tax credits, offset by discrete events that increased tax expense by $3.4 million as a result of changes in certain tax accounting methods.

The Company and its domestic subsidiaries file federal, state and local income/franchise tax returns in the U.S. Our international subsidiaries file income tax returns in various non-U.S. jurisdictions. The audit of our U.S. federal income tax returns for 2004 and 2005 was closed in the first quarter 2009, which resulted in a reduction in our liabilities for uncertain tax positions of $7.8 million, which reduced income tax expense. Tax years 2006 and 2007 remain open to U.S. federal income tax examination and an audit by the IRS for these years commenced in April 2009. We are no longer subject to state income tax examinations by tax authorities in our major state jurisdictions for years prior to 2004. The earliest tax years of our major international subsidiaries that are subject to non-U.S. income tax examinations by tax authorities are: Switzerland, 1998; Hong Kong, 2001; Germany, 2003; Italy, Japan and the United Kingdom, 2004; Canada, 2005; and France, 2006.

During the first quarter of 2009, we filed certain tax accounting method changes with the U.S. Internal Revenue Service (“IRS”). As a result of these accounting method changes, certain tax deductions will be accelerated and reflected in the 2008 federal income tax return, resulting in a net operating loss for that year. This loss will be carried back to the 2006 tax year and reduce taxes previously paid. We expect to receive tax refunds of at least $45.0 million as a result of these accounting method changes. The acceleration of these tax deductions reduces certain permanent tax benefits in tax years 2008 and 2006. The impact of the reduction of these permanent tax benefits, totaling $3.4 million, has been reflected as a discrete item in the tax provision for the quarter ended March 31, 2009.

FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” requires us to accrue interest and penalties where there is underpayment of taxes, based on management’s best estimate of the amount ultimately to be paid, in the same period that the interest would begin accruing or the penalties would first be assessed. Our policy on the classification of interest and penalties is to record both as part of interest expense which is consistent with the prior year treatment. At March 31, 2009, we had $3.3 million in accrued interest and penalties for taxes. During the first quarter of 2009, we reversed $2.0 million of interest and penalties primarily as a result of the settlement of tax audits.

The total amount of unrecognized tax benefits as of March 31, 2009 was $30.8 million, which if recognized, would affect our effective tax rate in future periods.

A number of years may elapse before an uncertain tax position is finally resolved. It is difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position. We reevaluate and adjust our reserves for income taxes, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would usually require the use of cash and result in the reduction of the related reserve. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and effective tax rate in the period of resolution. It is reasonably possible that our liability for uncertain tax positions will be reduced by as much as $20.7 million over the next 12 months as a result of the settlement of tax positions with various tax authorities.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

Our effective tax rate decreased from tax expense of 23.4% of pre-tax profit during the first quarter of 2008 to a tax benefit of 13.2% during the current quarter. The effective tax rate was impacted by discrete events which reduced tax expense for the current quarter and consisted primarily of settlement of tax audits of prior years, changes in judgment related to uncertain tax positions in prior years, and changes to various tax credits and tax accounting methods based on tax returns filed or to be filed for tax year 2008.

Our effective tax rate for the full year 2009 could be impacted by a number of factors such as new tax laws, interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our use of tax credits and our geographic profit mix. We expect our effective tax rate for the year to be approximately 25% compared to 23% for 2008. The increase in tax rate is primarily attributable to a shift in geographic mix of income, with more income in 2009 in higher-tax rate countries such as the U.S. The 2008 tax rate was also favorably impacted by additional tax credits.

During the first quarter 2009 we filed certain tax accounting method changes with the U.S. Internal Revenue Service. As a result of these accounting method changes, certain tax deductions will be accelerated and reflected in the 2008 federal income tax return, resulting in a net operating loss for that year. This loss will be carried back to the 2006 tax year and reduce taxes previously paid. We expect to receive tax refunds of at least $45 million as a result of these accounting method changes. The acceleration of these tax deductions reduces certain permanent tax benefits in tax years 2008 and 2006. The impact of the reduction of these permanent tax benefits, totaling $3.4 million, has been reflected as a discrete item in the tax provision for the three months ended March 31, 2009.

These excerpts taken from the BEC 10-K filed Feb 23, 2009.

Income Taxes

We record liabilities for potential income tax assessments based on our estimate of potential tax related exposures using the criteria established in Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109” (“FIN 48”). These assessments require significant judgment as uncertainties often exist in interpretations of new laws, new interpretations of existing laws and rulings by multiple taxing authorities. Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known. Changes in our estimates could have a material effect on our effective income tax rate in the period.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

We establish a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. An increase or decrease to net earnings may occur if we were to determine that we were able to utilize more or less of these deferred tax assets than currently expected.

 

 

BEC 2008 FORM 10-K    25


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In the fourth quarter of 2008 the U.S. Congress enacted legislation extending the federal Research & Experimentation (“R&E”) tax credit for the 2008 and 2009 tax years. As a result, an estimated 2008 R&E credit of $8.9 million was recorded in the fourth quarter of 2008. The 2008 financial statements include the benefit for the 2008 and 2007 R&E tax credit. In prior years, due to the difficulty in estimating an R&E credit on a current basis, we used a method to record the R&E tax credit for financial reporting purposes, which resulted in recognizing the benefit in the year subsequent to the credit utilization on its tax return. The prior method used to record the R&E tax credit did not have a material impact on any of the financial statements presented.

Income
Taxes

We record liabilities for potential income tax assessments based on our estimate of potential tax related exposures using the
criteria established in Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109” (“FIN 48”). These
assessments require significant judgment as uncertainties often exist in interpretations of new laws, new interpretations of existing laws and rulings by multiple taxing authorities. Differences between actual results and our assumptions, or changes
in our assumptions in future periods, are recorded in the period they become known. Changes in our estimates could have a material effect on our effective income tax rate in the period.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years
to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.

We establish a valuation allowance to reduce deferred tax assets to an amount whose realization is more
likely than not. An increase or decrease to net earnings may occur if we were to determine that we were able to utilize more or less of these deferred tax assets than currently expected.

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In the fourth quarter of 2008 the U.S. Congress enacted legislation extending the federal
Research & Experimentation (“R&E”) tax credit for the 2008 and 2009 tax years. As a result, an estimated 2008 R&E credit of $8.9 million was recorded in the fourth quarter of 2008. The 2008 financial statements include the
benefit for the 2008 and 2007 R&E tax credit. In prior years, due to the difficulty in estimating an R&E credit on a current basis, we used a method to record the R&E tax credit for financial reporting purposes, which resulted in
recognizing the benefit in the year subsequent to the credit utilization on its tax return. The prior method used to record the R&E tax credit did not have a material impact on any of the financial statements presented.

STYLE="margin-top:18px;margin-bottom:0px; margin-left:2%">Pension and Postretirement Benefit Plans

SIZE="2">We sponsor pension plans in various forms, and a postretirement medical benefit plan which covers U.S. employees and retirees who met certain eligibility criteria at the end of 2002. The obligations under these plans are recognized in the
Consolidated Financial Statements based upon a number of factors which are used to determine the expense, liabilities and asset values related to the plans. Two of the critical assumptions are the expected long-term rate of return on plan assets and
the discount rate. Other important assumptions include expected future salary increases, retirement dates, employee turnover, mortality rates and the health care cost trend rate. We review these assumptions annually.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The expected long-term rate of return on plan assets is estimated based upon historical cumulative returns on plan assets, the investment strategy, plan
asset allocation and expected returns. While there is no absolute predictor of future performance, our historical return on plan assets has been over 7%. We believe our expected long-term rate of return assumption, which is used to calculate pension
expense, of 8.5% in 2008 and 9% in 2007 and 2006, is reasonable based on our investment strategy and our long-term investment return experience. We froze entrance to the pension plan effective December 31, 2006 and changed the investment
allocation in December 2007 to reduce the volatility of changes in the fair value of plan assets. However, the value of our pension plan assets declined significantly in 2008 as a result of the overall economic decline. We expect to reduce our
expected long-term rate of return on plan assets to 8.25% in 2009 and expect our pension plan expense to increase, as described further under “Global Market and Economic Conditions”.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The discount rate is an assumption used to determine the actuarial present value of benefits attributed to the services rendered by participants in our
pension plans. The rate used reflects our best estimate of the rate at which pension benefits will be effectively settled considering the timing of expected payments to plan participants. The discount rates are developed based on benchmarking
indexes. The benchmarking indexes are obtained by using high-quality long-term corporate bond yields currently available with terms similar to the expected timing of payments to be made under our pension obligation. Due to the recent, unprecedented
events in the financial markets associated with the current credit environment, there is a greater than usual disparity in yields among the bonds included in the various indices used to determine our pension discount rates. Given this disparity, we
carefully evaluated our existing methodologies for determining our pension discount rates. We are no longer indexing our discount rate to the Moody’s AA bond yield. Instead, the discount rate used to determine the benefit obligation for the
U.S. Pension Plan and postretirement plans was selected by the Company, in consultation with its independent actuaries, using an average of pension discount yield curves based on the characteristics of the U.S. Plan and postretirement liabilities,
each determined independently. The weighted average discount rate we utilized to measure our U.S. pension obligation as of December 31, 2008 and to calculate our 2009 expense was 6.33% in comparison to 6.0% used in determining our 2008 expense.
For all other non-U.S. pension plans, the Company set the assumed discount rates based on the nature of liabilities, local economic environments and available bond indices.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Changes in the expected long term rate of return on assets (“ELTRA”) or discount rate could have a material effect on our reported pension
obligation and related pension expense. The following table illustrates the sensitivity to a change to certain key assumptions used in the calculation of expense for the year ended December 31, 2008 and the projected benefit obligation (PBO) at
December 31, 2008 for our major U.S. and non-U.S. defined benefit pension plans (in millions):

 




















































































































   Impact on 2008
Pre-Tax Pension
Expense Increase
(Decrease)
  Impact on PBO
December 31, 2008
Increase (Decrease)
 

Change in assumption:

  U.S.  Non- U.S.  U.S.  Non-U.S. 

25 basis point decrease in discount rate

  $1.6  $0.7  $16.3  $8.0 

25 basis point increase in discount rate

  $(1.6) $(0.7) $(16.3) $(7.3)

25 basis point decrease in ELTRA

  $1.4  $0.4   NA   NA 

25 basis point increase in ELTRA

  $(1.4) $(0.4)  NA   NA 

Our funding policy provides that payments to our domestic pension trusts will at least be equal to
the minimum funding requirements provided for in the Employee Retirement Income Security Act of 1974.

 


 












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Income Taxes:

Income tax as a percentage of pretax earnings from continuing operations was 28.4% in 2007 compared with 26.5% in 2006. Our effective tax rate in 2007 was lower than the United States federal statutory rate due primarily to:

 

   

lower taxes on profits earned in Ireland and China;

 

   

various tax credits, including R&E tax credits;

 

   

the deduction allowed under Section 199 of the United States tax code related to domestic production activity;

 

   

an adjustment related to prior years’ state taxes; and

 

   

settlement of an income tax audit in the United Kingdom.

Income tax as a percentage of pretax earnings from continuing operations in 2007 was negatively impacted by several items as follows:

 

   

geographic profit mix;

 

   

increase in state income taxes;

 

   

no extraterritorial income exclusion (“EIE”) in the United States due to its expiration as of December 31, 2006; and

 

   

tax law changes in certain foreign countries which impacted the deferred tax assets of certain of our foreign subsidiaries.

Income Taxes

We utilize the asset and liability method of accounting for income taxes as set forth in SFAS 109, “Accounting for Income Taxes.” Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

We have established a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. An increase or decrease to income could occur if we determine that we are able to utilize more or less of these deferred tax assets than currently expected.

Liabilities are recorded for more likely than not income tax assessments based on estimates of potential tax related exposures. Accounting for these assessments requires significant judgment as uncertainties often exist in respect to existing tax laws, new interpretations of existing laws and rulings by taxing authorities. Differences between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known.

As of January 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,” (“FIN 48”). Among other things, FIN 48 provides guidance to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold, which income tax positions must achieve before being recognized in the financial statements. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Differences between

 

 

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Notes to Consolidated Financial Statements (Continued)

(tabular dollar amounts in millions, except amounts per share)

 

tax positions taken in our tax return and amounts recognized in the financial statements are generally recognized as one of the following: a) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, or b) a reduction in a deferred tax asset or an increase in a deferred tax liability. The impact of the adoption of FIN 48 was immaterial.

Income Taxes

FACE="Times New Roman" SIZE="2">We utilize the asset and liability method of accounting for income taxes as set forth in SFAS 109, “Accounting for Income Taxes.” Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax
credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

SIZE="2">We have established a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. An increase or decrease to income could occur if we determine that we are able to utilize more or less of these
deferred tax assets than currently expected.

Liabilities are recorded for more likely than not income tax assessments based on estimates
of potential tax related exposures. Accounting for these assessments requires significant judgment as uncertainties often exist in respect to existing tax laws, new interpretations of existing laws and rulings by taxing authorities. Differences
between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known.

As of
January 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,”
(“FIN 48”). Among other things, FIN 48 provides guidance to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold, which income tax positions must achieve before
being recognized in the financial statements. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Differences between

 


 












52 BEC 2008 FORM 10-K






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Notes to Consolidated Financial Statements (Continued)

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">(tabular dollar amounts in millions, except amounts per share)

SIZE="1"> 



tax positions taken in our tax return and amounts recognized in the financial statements are generally recognized as one of the following: a) an increase in
a liability for income taxes payable or a reduction of an income tax refund receivable, or b) a reduction in a deferred tax asset or an increase in a deferred tax liability. The impact of the adoption of FIN 48 was immaterial.

STYLE="margin-top:18px;margin-bottom:0px">Share-Based Compensation

SFAS 123(R)
“Share-Based Payment” (“SFAS 123(R)”), requires the use of a valuation model to calculate the fair value of share-based awards. We elected to use the Black-Scholes Merton (“BSM”) option-pricing model, which incorporates
various assumptions including volatility, expected life and interest rates. The expected life is based on the observed and expected time to post-vesting exercise and forfeitures of stock options by our employees. We used a combination of historical
and implied volatility, or blended volatility, in deriving the expected volatility assumption as allowed under SFAS 123(R) and Staff Accounting Bulletin 107 (“SAB 107”) “Share-Based Payment.” The risk-free interest rate
assumption is based upon observed interest rates appropriate for the term of our stock options. The dividend yield assumption is based on our history and expectation of dividend payouts. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience. The expected term of the stock options was determined using historical
data adjusted for the estimated exercise dates of unexercised options.

This excerpt taken from the BEC 10-Q filed Nov 5, 2008.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

The effective tax rate for the three months ended September 30, 2008 and September 30, 2007 was 10.9% and 25.4%, respectively. For the nine months ended September 30, 2008 and September 30, 2007, the effective tax rate was 22.8% and 27.8%, respectively. The effective tax rate for both periods was impacted by discrete events. During the nine months ended September 30, 2008, discrete events that reduced tax expense included a reduction in tax liabilities for uncertain tax positions as a result of the expiration of the statute of limitations and claims for refund of favorable adjustments to previously disallowed expenses and an increase in state tax credit carryforwards as a result of state audit settlement during the period. The decrease in the effective tax rate between the first nine months of 2007 and the first nine months of 2008 is the result of a more favorable mix of income with more income being earned in countries with overall lower tax rates. This shift in geographic profit mix in the third quarter 2008 is in large part due to the provision for environmental remediation, which resulted in the unusually low tax rate for the third quarter 2008. The effective tax rate for the first nine months of 2007 was impacted by higher provisions for uncertain tax positions.

The Emergency Economic Stabilization Act of 2008 enacted on October 3, 2008 provides for an extension of the Research and Experimentation Tax Credit (“R&E Credit”) for tax years 2008 and 2009. As a result of the enactment of this legislation, the Company expects to record a tax benefit in the fourth quarter for the estimated amount of the 2008 R&E Credit. This is in addition to amounts already considered for 2007 R&E Credits to be recorded in 2008 based on actual 2007 tax returns filed. The Company does not believe the Emergency Economic Stabilization Act of 2008 will have a material impact on our consolidated financial position and results of operations.

Our effective tax rate for the full year 2008 could be impacted by a number of factors such as new tax laws, interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our use of tax credits and our geographic profit mix. We expect our effective tax rate for the year to be approximately 23 to 24%.

This excerpt taken from the BEC 10-Q filed Aug 6, 2008.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

The effective tax rate for the three months ended June 30, 2008 and June 30, 2007 was 26.8% and 32.5%, respectively. For the six months ended June 30, 2008 and June 30, 2007, the effective tax rate was 25.6% and 29.0%, respectively. The effective tax rate for both periods was impacted by discrete events. During the six months ended June 30, 2008, discrete events that reduced tax expense included a reduction in tax liabilities for uncertain tax positions as a result of the expiration of the statute of limitations and claims for refund of favorable adjustments to previously disallowed expenses. The decrease in the effective tax rate between the first six months of 2007 and the first six months of 2008 is the result of a less favorable mix of income as well as higher reserves in the first six months of 2007.

Our effective tax rate for the full year 2008 could be impacted by a number of factors such as new tax laws, interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our use of tax credits and our geographic profit mix. We expect our effective tax rate for the year to be approximately 28-29%.

This excerpt taken from the BEC 10-Q filed May 7, 2008.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

 

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The effective tax rate for the three months ended March 31, 2008 and March 31, 2007 was 24.3% and 21.6%, respectively. The effective tax rate for both periods was impacted by discrete events. During the three months ended March 31, 2008, discrete events that reduced tax expense included a reduction in tax liabilities for uncertain tax positions as a result of the expiration of the statute of limitations and claims for refund of favorable adjustments to previously disallowed expenses. The increase in the tax rate between the first quarter 2007 and the first quarter 2008 is the result of higher favorable discrete items in the first quarter of 2007, primarily attributable to adjustments related to prior years’ state taxes, as compared to the 2008 discrete items described above.

Our effective tax rate for the full year 2008 could be impacted by a number of factors such as new tax laws, interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our use of tax credits and our geographic profit mix. We expect our effective tax rate for the year to range from 29%-30%.

These excerpts taken from the BEC 10-K filed Feb 29, 2008.

Income Taxes

Liabilities are recorded for probable income tax assessments based on estimates of potential tax related exposures. Accounting for these assessments requires significant judgment as uncertainties often exist in respect to existing tax laws, new interpretations of existing laws and rulings by taxing authorities. Differences between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

We have established a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. An increase or decrease to income could occur if we determine that we are able to utilize more or less of these deferred tax assets than currently expected.

As of January 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,” (“FIN 48”). Among other things, FIN 48 provides guidance to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold, which income tax positions must achieve before being recognized in the financial statements. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Differences between tax positions taken in our tax return and amounts recognized in the financial statements are generally recognized as one of the following: a) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, or b) a reduction in a deferred tax asset or an increase in a deferred tax liability. The impact of the adoption of FIN 48 was immaterial.

 

54


Table of Contents

Notes to Consolidated Financial Statements (Continued)

(tabular dollar amounts in millions, except amounts per share)

 

Income Taxes

FACE="Times New Roman" SIZE="2">Liabilities are recorded for probable income tax assessments based on estimates of potential tax related exposures. Accounting for these assessments requires significant judgment as uncertainties often exist in
respect to existing tax laws, new interpretations of existing laws and rulings by taxing authorities. Differences between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable
to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.

We have established a valuation allowance to reduce deferred tax assets to an amount whose
realization is more likely than not. An increase or decrease to income could occur if we determine that we are able to utilize more or less of these deferred tax assets than currently expected.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">As of January 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,” (“FIN 48”). Among other things, FIN 48 provides guidance to address uncertainty in tax positions and clarifies the accounting for
income taxes by prescribing a minimum recognition threshold, which income tax positions must achieve before being recognized in the financial statements. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first
step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The
second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon settlement. Differences between tax positions taken in our tax return and amounts recognized in the financial statements are generally recognized as one of the following: a) an
increase in a liability for income taxes payable or a reduction of an income tax refund receivable, or b) a reduction in a deferred tax asset or an increase in a deferred tax liability. The impact of the adoption of FIN 48 was immaterial.

 


54







Table of Contents



Notes to Consolidated Financial Statements (Continued)

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">(tabular dollar amounts in millions, except amounts per share)

SIZE="1"> 


This excerpt taken from the BEC 10-Q filed Nov 7, 2007.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

The effective tax rate for the three and nine months ended September 30, 2007 was 25.4% and 27.8%, respectively. The effective tax rate for both periods was impacted by discrete events. During the three months ended September 30, 2007, discrete events which reduced tax expense consisted of: changes in tax laws in foreign countries which reduced net deferred tax liabilities by $0.9 million, settlement of a foreign tax audit for 2003 and certain items for 2004, which reduced tax expense by $1.9 million and California R&D credits and other return to provision adjustments of $1.4 million. During the nine months ended September 30, 2007, the discrete events also include a favorable adjustment to earnings of $4.3 million relating to prior years’ state tax liability, a favorable California tax audit settlement adjustment of $0.8 million and other discrete events of approximately $1 million.

Our effective tax rate for the full year of 2007 could be impacted by a number of factors including, but not limited to, enactments of new tax laws, new interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our utilization of tax credits and our geographic profit mix. We expect our effective tax rate for the year to range from 28%-29%.

This excerpt taken from the BEC 10-Q filed Aug 7, 2007.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

The effective income tax rate, as a percentage of pre-tax income, was 32.5% for the second quarter of 2007, compared to 27.5% for the corresponding period of 2006. For the six months ended June 30, 2007, the effective tax rate was 29.0% compared to 27.2% for the same period in 2006. The effective tax rate each period was impacted by discrete events. During the three months ended June 30, 2007 the discrete event is due to a favorable California tax audit settlement adjustment of $0.8 million. For the three months ended March 31, 2007, tax expense was reduced by discrete items of approximately $5.3 million occurring in the quarter, which included a favorable adjustment to earnings of $4.3 million relating to prior years’ state tax liability.

Our effective tax rate for the full year of 2007 could be impacted by a number of factors including, but not limited to, enactments of new tax laws, new interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our utilization of tax credits and our geographic profit mix. We expect our effective tax rate for the year to range from 30-31%.

This excerpt taken from the BEC 10-Q filed May 8, 2007.

Income Taxes

At the end of each interim reporting period, an estimate is made of the effective income tax rate expected to be applicable for the full year. The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.

The effective income tax rate, as a percentage of pre-tax income, was 21.6% for the first quarter of 2007, compared to 26.7% for the corresponding period of 2006. The decrease in the effective income tax rate is attributable to discrete events reflected in the first quarter of 2007. Current period discrete events are comprised of a favorable adjustment to our prior year state tax liability accrual of $4.3 million and settlement of certain international subsidiary audits.

Our effective tax rate for the full year of 2007 could be impacted by a number of factors including, but not limited to, enactments of new tax laws, new interpretations of existing tax laws, rulings by and settlements with taxing authorities, expiration of the statute of limitations for open years, our utilization of tax credits and our geographic profit mix. We expect our effective tax rate for the year to range from 30-31%.

This excerpt taken from the BEC 10-K filed Feb 26, 2007.

Income Taxes

Liabilities are recorded for probable income tax assessments based on estimates of potential tax related exposures. Recording of these assessments requires significant judgment as uncertainties often exist in respect to new laws, new interpretations of existing laws and rulings by taxing authorities. Differences between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company has established a valuation allowance to reduce deferred tax assets to an amount whose realization is more likely than not. An increase or decrease to income or goodwill could occur if the Company were to determine that it was able to utilize more or less of these deferred tax assets than currently expected.

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