DRC » Topics » 7. Income taxes

These excerpts taken from the DRC 10-K filed Feb 23, 2009.
Income Taxes
 
For the Predecessor period presented, certain of the Dresser-Rand Entities were accounted for as a partnership and were not required to provide for income taxes, since all partnership income and losses were allocated to the partners for inclusion in their respective financial statements. In connection with the Transactions, the assets of the former partnership are now subject to corporate income taxes. For income tax purposes, the former partnership assets have been recorded at, and will be depreciated based upon their fair value at the time of the Transaction instead of their historical amount. On October 29, 2004, our business became subject to income tax, which has impacted our results of operations for all successor periods presented in Item 6, Selected Financial Data.
 
For the Predecessor periods presented and prior to the Transactions, certain of our operations were subject to U.S. or foreign income taxes. After the Transactions, all of our operations are subject to U.S. or foreign income taxes. In preparing our financial statements, we have determined the tax provision of those operations on a separate company basis.
 
Income Taxes
 
For the Predecessor period presented, certain of the Dresser-Rand Entities were accounted for as a partnership and were not required to provide for income taxes, since all partnership income and losses were allocated to the partners for inclusion in their respective financial statements. In connection with the Transactions, the assets of the former partnership are now subject to corporate income taxes. For income tax purposes, the former partnership assets have been recorded at, and will be depreciated based upon their fair value at the time of the Transaction instead of their historical amount. On October 29, 2004, our business became subject to income tax, which has impacted our results of operations for all successor periods presented in Item 6, Selected Financial Data.
 
For the Predecessor periods presented and prior to the Transactions, certain of our operations were subject to U.S. or foreign income taxes. After the Transactions, all of our operations are subject to U.S. or foreign income taxes. In preparing our financial statements, we have determined the tax provision of those operations on a separate company basis.
 
Income
Taxes



 



For the Predecessor period presented, certain of the
Dresser-Rand Entities were accounted for as a partnership and
were not required to provide for income taxes, since all
partnership income and losses were allocated to the partners for
inclusion in their respective financial statements. In
connection with the Transactions, the assets of the former
partnership are now subject to corporate income taxes. For
income tax purposes, the former partnership assets have been
recorded at, and will be depreciated based upon their fair value
at the time of the Transaction instead of their historical
amount. On October 29, 2004, our business became subject to
income tax, which has impacted our results of operations for all
successor periods presented in Item 6, Selected
Financial Data
.


 



For the Predecessor periods presented and prior to the
Transactions, certain of our operations were subject to
U.S. or foreign income taxes. After the Transactions, all
of our operations are subject to U.S. or foreign income
taxes. In preparing our financial statements, we have determined
the tax provision of those operations on a separate company
basis.


 




Income
Taxes



 



For the Predecessor period presented, certain of the
Dresser-Rand Entities were accounted for as a partnership and
were not required to provide for income taxes, since all
partnership income and losses were allocated to the partners for
inclusion in their respective financial statements. In
connection with the Transactions, the assets of the former
partnership are now subject to corporate income taxes. For
income tax purposes, the former partnership assets have been
recorded at, and will be depreciated based upon their fair value
at the time of the Transaction instead of their historical
amount. On October 29, 2004, our business became subject to
income tax, which has impacted our results of operations for all
successor periods presented in Item 6, Selected
Financial Data
.


 



For the Predecessor periods presented and prior to the
Transactions, certain of our operations were subject to
U.S. or foreign income taxes. After the Transactions, all
of our operations are subject to U.S. or foreign income
taxes. In preparing our financial statements, we have determined
the tax provision of those operations on a separate company
basis.


 




Income Taxes
 
The Company determines the consolidated provision for income taxes for its operations on a legal entity, country-by-country basis. Deferred taxes are provided for operating loss and credit carry forwards and temporary differences between the tax bases of assets and liabilities and the amounts included in these consolidated financial statements as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for deferred tax assets when it is more likely than not that a portion or all of the asset will not be realized.
 
Uncertain tax positions (1) are recognized in financial statements only if it is more likely than not that the position will be sustained upon examination through any appeals and litigation processes based on the technical merits of the position and, if recognized, (2) are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
 
Income Taxes
 
The Company determines the consolidated provision for income taxes for its operations on a legal entity, country-by-country basis. Deferred taxes are provided for operating loss and credit carry forwards and temporary differences between the tax bases of assets and liabilities and the amounts included in these consolidated financial statements as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for deferred tax assets when it is more likely than not that a portion or all of the asset will not be realized.
 
Uncertain tax positions (1) are recognized in financial statements only if it is more likely than not that the position will be sustained upon examination through any appeals and litigation processes based on the technical merits of the position and, if recognized, (2) are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
 
Income
Taxes



 



The Company determines the consolidated provision for income
taxes for its operations on a legal entity,
country-by-country
basis. Deferred taxes are provided for operating loss and credit
carry forwards and temporary differences between the tax bases
of assets and liabilities and the amounts included in these
consolidated financial statements as measured by enacted tax
rates expected to apply when temporary differences are settled
or realized. A valuation allowance is established for deferred
tax assets when it is more likely than not that a portion or all
of the asset will not be realized.


 



Uncertain tax positions (1) are recognized in financial
statements only if it is more likely than not that the position
will be sustained upon examination through any appeals and
litigation processes based on the technical merits of the
position and, if recognized, (2) are measured at the
largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement.


 




Income
Taxes



 



The Company determines the consolidated provision for income
taxes for its operations on a legal entity,
country-by-country
basis. Deferred taxes are provided for operating loss and credit
carry forwards and temporary differences between the tax bases
of assets and liabilities and the amounts included in these
consolidated financial statements as measured by enacted tax
rates expected to apply when temporary differences are settled
or realized. A valuation allowance is established for deferred
tax assets when it is more likely than not that a portion or all
of the asset will not be realized.


 



Uncertain tax positions (1) are recognized in financial
statements only if it is more likely than not that the position
will be sustained upon examination through any appeals and
litigation processes based on the technical merits of the
position and, if recognized, (2) are measured at the
largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement.


 




These excerpts taken from the DRC 10-K filed Feb 26, 2008.
Income Taxes
 
The Company determines the consolidated provision for income taxes for its operations on a legal entity, country- by-country basis. Deferred taxes are provided for operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and the amounts included in these consolidated financial statements as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for deferred tax assets when it is more likely than not that a portion or all of the asset will not be realized. Uncertain tax positions (1) are recognized in financial statements only if it is more likely than not that the position will be sustained upon examination through any appeals and litigation processes based on the technical merits of the position and, if recognized, (2) are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
 
Income
Taxes



 



The Company determines the consolidated provision for income
taxes for its operations on a legal entity, country- by-country
basis. Deferred taxes are provided for operating loss and credit
carryforwards and temporary differences between the tax basis of
assets and liabilities and the amounts included in these
consolidated financial statements as measured by enacted tax
rates expected to apply when temporary differences are settled
or realized. A valuation allowance is established for deferred
tax assets when it is more likely than not that a portion or all
of the asset will not be realized. Uncertain tax positions
(1) are recognized in financial statements only if it is
more likely than not that the position will be sustained upon
examination through any appeals and litigation processes based
on the technical merits of the position and, if recognized,
(2) are measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon
ultimate settlement.


 




This excerpt taken from the DRC 10-K filed Mar 7, 2007.
Income Taxes
 
For the Predecessor periods presented, certain of the Dresser-Rand Entities were accounted for as a partnership and were not required to provide for income taxes, since all partnership income and losses were allocated to the partners for inclusion in their respective financial statements. In connection with the Transactions, the assets of the former partnership are now subject to corporate income taxes. For income tax purposes, the former partnership assets have been recorded at, and will be depreciated based upon their fair market value at the time of the Transaction instead of the historical amount. On October 29, 2004, our business became subject to income tax, which has impacted our results of operations for the years ended December 31, 2006 and 2005 and for the period from October 30, 2004 through December 31, 2004 and will affect our results in the future.
 
For the Predecessor periods presented and prior to the Transactions, certain of our operations were subject to U.S. or foreign income taxes. After the Transactions, all of our operations are subject to U.S. or foreign income taxes. In preparing our financial statements, we have determined the tax provision of those operations on a separate company basis.
 
This excerpt taken from the DRC 10-Q filed Nov 14, 2005.

7.     Income taxes

Our estimated income tax provision for the nine months ended September 30, 2005, results in an effective rate that differs from U.S. Federal statutory rate of 35% principally because, in certain tax jurisdictions, we have incurred net operating losses from inception and are currently forecasting net operating losses for 2005.  As a result, we have provided a valuation allowance for the deferred tax assets in those jurisdictions on the basis that it is more likely than not, as defined by generally accepted accounting principles, that we will not realize the net operating loss assets.  We will adjust that valuation allowance in the future when, based principally on attained results, it becomes more likely than not that the benefits of the net operating loss carried forward will be realized.  Our effective income tax rate for the three months ended September 30, 2005, results from the difference between provision for income tax required for the nine months ended September 30, 2005, and that recorded for the six months ended June 30, 2005.  Our effective income tax rate for the three months and nine months ended September 30, 2004, differed from the U.S. Federal statutory rate of 35%, primarily because the Predecessor period reflected the non-taxable partnership structure in existence for most of the domestic operations.

As mentioned in Note 1, the Successor began operations as a new entity on October 29, 2004.  We operate in numerous countries around the world and file tax returns as appropriate.  The Acquisition was an asset purchase in the United States and a stock purchase outside the United States.  The purchase price was allocated among the entities acquired based on estimated fair values.  Deferred taxes were recorded to reflect the difference between the purchase price allocated to foreign entities and their underlying tax basis.  Management believes that it has provided adequate estimated liabilities for taxes based on the allocation of the purchase price and its understanding of the tax laws and regulations in those countries.  Since few tax returns have been filed since beginning operations and none have been audited by the appropriate taxing authorities, we could be exposed to additional income and other taxes.

In October 2004, the American Jobs Creation Act of 2004 (the “Act”) was enacted.  The Act raises a number of issues with respect to accounting for income taxes. For companies that pay U.S. income taxes on manufacturing activities in the U.S., the Act provides a deduction from taxable income equal to a stipulated percentage of qualified income from domestic production activities.  On December 21, 2004, the FASB issued guidance regarding the accounting implications of the Act related to the deduction for qualified domestic production activities which should be accounted for as a special deduction under SFAS No. 109, Accounting for Income Taxes. The guidance applies to financial statements for periods ending after the date the Act was enacted.  In years in which there is U.S. taxable income starting in 2005, this essentially results in a one percentage point reduction in the statutory rate. The Act also creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations.  As part of the sale of the Predecessor, all previously undistributed foreign earnings were deemed distributed to I-R.  Accordingly, while we are still evaluating the potential impact of these dividend repatriation provisions, any amounts repatriated under the Act are not likely to be significant.

Page 9 of 30



DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (Continued)

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