|
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Included in the accompanying consolidated balance sheet as follows:
| |
December 31, |
 |
|
| |
2004 |
|
2003 |
|
|
|
| |
(In thousands) |
| Current net deferred tax assets |
$ |
2,252 |
|
$ |
1,957 |
|
| Non-current net deferred tax liabilities |
|
(6,974 |
) |
|
(21,562 |
) |
|
|
|
| Net deferred tax liability |
$ |
(4,722 |
) |
$ |
(19,605 |
) |
|
|
|
|
|
|
|
No provision has been made for U.S. federal income taxes on approximately $22.3 million of accumulated and undistributed earnings of foreign subsidiaries at December 31, 2004 since these earnings are considered to be permanently invested in foreign operations.
On October 22, 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed into law. The AJCA includes a temporary incentive for United States multinational corporations to repatriate undistributed earnings of foreign subsidiaries by providing an 85 percent dividends received deduction for qualifying dividends from controlled foreign corporations, as defined in the AJCA, at an effective tax cost of 5.25 percent on any such repatriated foreign earnings. The Company may elect to apply this provision to qualifying earnings repatriations in 2005. We have begun an evaluation of the effects of the repatriation provisions and expect to complete the analysis prior to the end of the third quarter 2005. The range of possible amounts that the Company is considering for repatriation under this provision is between zero and $22.3 million. The related potential range of income tax is between zero and $1.2 million.
A reconciliation of income tax expense at the statutory rate to income tax expense included in the accompanying consolidated statements of income follows:
| |
Years Ended December 31, |
|
|
| |
2004 |
|
2003 |
|
2002 |
|
|
|
|
| |
(In thousands, except Federal
income tax rate) |
| Federal income tax rate |
|
35 |
% |
|
35 |
% |
|
35 |
% |
| Federal taxes at statutory rate |
$ |
40,083 |
|
$ |
39,342 |
|
$ |
33,536 |
|
| State income taxes, net of federal tax benefit |
|
1,933 |
|
|
1,974 |
|
|
1,068 |
|
| Unrealized tax benefits |
|
(144 |
) |
|
(617 |
) |
|
— |
|
| Other |
|
(1,693 |
) |
|
(155 |
) |
|
370 |
|
|
|
|
|
| Income tax expense |
$ |
40,179 |
|
$ |
40,544 |
|
$ |
34,974 |
|
|
|
|
|
|
|
|
|
|
We have estimated and accrued for certain tax assessments and the expected resolution of tax contingencies which arise in the course of our business. The ultimate outcome of these tax-related contingencies impact the determination of income tax expense and may not be resolved until several years after the related tax returns have been filed. Predicting the outcome of such tax assessments involves uncertainty; however, we believe that recorded tax liabilities adequately account for our analysis of probable outcomes.
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