6. Income Taxes
The following details the components of income tax (benefit) expense from continuing operations:
Income Tax (Benefit) Expense from Continuing Operations
| For the Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | ||||||||
| (in millions) | ||||||||||
| Current income taxes | ||||||||||
| Federal | $ | (232) |
$ | 84 |
$ | 823 |
||||
| State | (78) |
14 |
106 |
|||||||
| Foreign | 130 |
18 |
27 |
|||||||
| Total current income taxes | (180) |
116 |
956 |
|||||||
| Deferred income taxes |
|
|
|
|||||||
| Federal | (472) |
440 |
165 |
|||||||
| State | (9) |
21 |
9 |
|||||||
| Foreign | (33) |
48 |
33 |
|||||||
| Total deferred income taxes | (514) |
509 |
207 |
|||||||
| Investment tax credit amortization | (13) |
(14) |
(13) |
|||||||
| Total income tax (benefit) expense from continuing operations | $ | (707) |
(a) | $ | 611 |
$ | 1,150 |
(b) | ||
(a) Excludes $94 million of deferred federal, state and foreign tax benefits related to the cumulative effect of changes in accounting principles recorded net of tax.
(b) Excludes $59 million of deferred federal and state tax benefits related to the cumulative effect of change in accounting principle recorded net of tax.
The taxes recorded for discontinuing operations are excluded from the continuing operations section above and are presented as a separate column in Note 12.
(Loss) Earnings from Continuing Operations before Income Taxes
| For the Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | ||||||
| (in millions) | ||||||||
| Domestic | $ | (2,013) |
$ | 1,619 |
$ | 2,930 |
||
| Foreign | 301 |
287 |
219 |
|||||
| Total (loss) income | $ | (1,712) |
$ | 1,906 |
$ | 3,149 |
||
Income Tax (Benefit) Expense from Continuing Operations Reconciliation to Statutory Rate
| For the Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||||||
| (in millions) | |||||||||||
| Income tax (benefit) expense, computed at the statutory rate of 35% |
$ | (599) |
$ | 667 |
$ | 1,102 |
|||||
| State income tax, net of federal income tax effect | (57) |
23 |
74 |
||||||||
| Tax differential on foreign earnings | (9) |
(34) |
(17) |
||||||||
| Employee stock ownership plan dividends | (20) |
(33) |
(2) |
||||||||
| Other items, net | (22) |
(12) |
(7) |
||||||||
| Total income tax (benefit) expense from continuing operations |
$ | (707) |
$ | 611 |
$ | 1,150 |
|||||
| Effective tax rate | 41.3 |
% | 32.1 |
% | 36.5 |
% | |||||
Net Deferred Income Tax Liability Components
| December 31, | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| (in millions) | |||||
| Deferred credits and other liabilities | $ | 1,190 |
$ | 1,540 |
|
| Other | 38 |
145 |
|||
| Total deferred income tax assets | 1,228 |
1,685 |
|||
| Valuation allowance | (39) |
(41) |
|||
| Net deferred income tax assets | 1,189 |
1,644 |
|||
| Investments and other assets | (985) |
(1,043) |
|||
| Accelerated depreciation rates | (3,006) |
(4,224) |
|||
| Regulatory assets and deferred debits | (1,059) |
(856) |
|||
| Total deferred income tax liabilities | (5,050) |
(6,123) |
|||
| Total net deferred income tax liabilities | $ | (3,861) |
$ | (4,479) |
|
The above amounts have been classified in the Consolidated Balance Sheets as follows:
Deferred Tax Liabilities
| December 31, | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| (in millions) | |||||
| Current deferred tax assets, included in other current assets | $ | 62 |
$ | 59 |
|
| Non-current deferred tax assets, included in other investments and other assets |
197 |
296 |
|||
| Non-current deferred tax liabilities | (4,120) |
(4,834) |
|||
| Total net deferred income tax liabilities | $ | (3,861) |
$ | (4,479) |
|
Valuation allowances have been established for certain foreign net operating loss carryforwards that reduce deferred tax assets to an amount that will, more likely than not, be realized. The net change in the total valuation allowance is included in "Tax differential on foreign earnings" of the Reconciliation to Statutory Rate.
Deferred income taxes have not been provided on the undistributed earnings of Duke Energy's foreign subsidiaries as such amounts are deemed to be permanently reinvested. The cumulative undistributed earnings as of December 31, 2003, on which Duke Energy has not provided deferred income taxes, is approximately $630 million. During 2003 Duke Energy utilized certain losses that relate to the foreign currency adjustment in the amount of $114 million.