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5. INCOME TAXES The following table summarizes the provision /(benefit) for U.S. federal and U.S. possessions,
state and foreign taxes on income.
(Dollars in thousands) 2000 1999 1998
Current:
U.S. federal and U.S. possessions $318,873 $110,490 $214,866
State 45,935 15,389 17,667
Foreign 179,984 211,347 100,007
544,792 337,226 332,540
Deferred:
U.S. federal and U.S. possessions 71,602 66,944 103,630
State (1,871) 2,441 1,536
Foreign (41,400) (45,821) 15,709
28,331 23,564 120,875
Total tax provision $573,123 $360,790 $453,415
The Fiscal 2000 effective tax rate was unfavorably impacted by the excess of basis in assets
for financial reporting over the tax basis of assets included in the Weight Watchers sale and
by gains in higher taxed states related to the sale. Tax expense related to the pretax gain
of $464.6 million was $204.9 million. The Fiscal 2000 and Fiscal 1999 effective tax rates were
unfavorably impacted by restructuring and implementation costs expected to be realized in
lower tax rate jurisdictions and by nondeductible expenses related to the restructuring. Tax
benefit related to the $392.7 million of Operation Excel net restructuring and implementation
costs for Fiscal 2000 was $125.3 million. Tax benefit related to the $552.8 million of Operation
Excel restructuring and implementation costs for 1999 was $143.1 million. In Fiscal 1998,
reduced tax rates enacted in the U.K. and Italy decreased the tax provision by $21.6 million,
representing the impact of the reduced tax rates on net deferred taxes payable as of the dates
of enactment. Tax expense resulting from allocating certain tax benefits directly to additional
capital was immaterial in Fiscal 2000. In Fiscal 1999 it was $26.6 million, and in Fiscal 1998
it was $77.7 million.
The components of income before income taxes consist of the following:
(Dollars in thousands) 2000 1999 1998
Domestic $ 805,464 $427,089 $ 742,665
Foreign 658,212 408,042 512,316
Total income before income taxes $1,463,676 $835,131 $1,254,981
The differences between the U.S. federal statutory tax rate and the company’s consolidated
effective tax rate are as follows:
2000 1999 1998
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Tax on income of foreign subsidiaries (1.1) 1.3 (0.9)
State income taxes (net of federal benefit) 1.9 1.5 1.1
Earnings repatriation 1.7 (0.3) (0.2)
Effect of foreign losses 1.4 3.8 –
Tax on income of U.S. possessions subsidiaries (1.4) 0.6 (1.3)
Other 1.7 1.3 2.4
Effective tax rate 39.2% 43.2% 36.1%
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