(12) ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts payable and accrued expenses consisted ofthe following:December <strong>31</strong>,(Dollars in thousands) <strong>2005</strong> 2004Trade accounts payable $348,320 $273,274Accrued taxes other than income 111,997 98,208Accrued payroll and related benefits 110,675 74,907Accrued health care 78,523 84,286Workers’ compensation obligations 34,<strong>31</strong>2 41,436Other accrued benefits 21,939 17,025Accrued royalties 50,344 23,517Accrued environmental 23,619 15,095Income taxes payable – Australia 23,409 1,658Accrued interest 21,260 21,304Other accrued expenses 43,567 40,890Total accounts payable andaccrued expenses $867,965 $691,600Total income tax provision (benefit) consisted ofthe following:Year Ended December <strong>31</strong>,(Dollars in thousands) <strong>2005</strong> 2004 2003Current:U.S. federal $ – $ 655 $ –Non U.S. 25,622 4,533 251State 300 300 300Deferred:Total current 25,922 5,488 551U.S. federal (18,475) (33,275) (46,2<strong>31</strong>)Non U.S. 22,997 (328) –State (29,484) 1,678 (2,028)Total deferred (24,962) (<strong>31</strong>,925) (48,259)Total provision (benefit) $ 960 $(26,437) $(47,708)The income tax rate differed from the U.S. federal statutoryrate as follows:(13) INCOME TAXESIncome (loss) before income taxes, minority interests anddiscontinued operations consisted of the following:Year Ended December <strong>31</strong>,(Dollars in thousands) <strong>2005</strong> 2004 2003U.S. $253,329 $118,076 $ 1,734Non U.S. 172,756 34,995 (4,915)Total $426,085 $153,071 $(3,181)Year Ended December <strong>31</strong>,(Dollars in thousands) <strong>2005</strong> 2004 2003Federal statutory rate $ 149,130 $ 53,575 $ (1,113)Depletion (59,412) (43,488) (34,436)Foreign earnings rate differential (12,279) (8,043) (965)State income taxes, net ofU.S. federal tax benefit (29,288) 1,872 (1,834)Deemed liquidation of subsidiary (<strong>31</strong>4,071) – –Changes in valuation allowance 216,908 (25,863) (230)Changes in tax reserves 44,968 – (10,000)Other, net 5,004 (4,490) 870Total $ 960 $(26,437) $(47,708)67
The tax effects of temporary differences that give rise tosignificant portions of the deferred tax assets and liabilitiesconsisted of the following:December <strong>31</strong>,(Dollars in thousands) <strong>2005</strong> 2004Deferred tax assets:Tax credits and loss carryforwards $ 742,368 $ 377,183Postretirement benefit obligations 410,905 391,410Accrued long-term workers’ compensation liabilities 101,346 100,157Additional minimum pension liability 46,9<strong>31</strong> 48,188Accrued reclamation and mine closing liabilities 46,139 46,776Intangible tax asset and purchased contract rights 35,405 45,001Obligation to industry fund 12,112 13,365Others 71,<strong>31</strong>1 82,844Total gross deferred tax assets 1,466,517 1,104,924Deferred tax liabilities:Property, plant, equipment and mine development,leased coal interests and advance royalties,principally due to differences in depreciation,depletion and asset writedowns 1,356,692 1,271,758Inventory 77,824 64,973Others 1,021 2,465Total gross deferred tax liabilities 1,435,537 1,339,196Valuation allowance (360,441) (143,533)Net deferred tax liability $ (329,461) $ (377,805)Deferred taxes consisted of the following:Current deferred income taxes $ 9,027 $ 15,461Noncurrent deferred income taxes (338,488) (393,266)Net deferred tax liability $ (329,461) $ (377,805)The Company’s deferred tax assets included alternativeminimum tax (“AMT”) credits of $26.2 million and $54.0 millionas of December <strong>31</strong>, <strong>2005</strong> and 2004, respectively, and netoperating loss (“NOL”) carryforwards of $716.2 million and$322.7 million as of December <strong>31</strong>, <strong>2005</strong> and 2004, respectively.The AMT credits have no expiration date and the NOLcarryforwards begin to expire in the year 2019. Utilization ofthese AMT credits and NOL carryforwards is subject to variouslimitations because of previous changes in ownership (asdefined in the Internal Revenue Code) of the Company, andultimate realization could be negatively impacted by marketconditions and other variables not known or anticipated at thistime. The AMT credits and NOL carryforwards are offset by avaluation allowance of $360.4 million. The valuation allowancewas increased by $216.9 million for the year ended December <strong>31</strong>,<strong>2005</strong>, to correspond with an increase in available NOLs andreduced by $25.9 million and $0.2 million for the years endedDecember <strong>31</strong>, 2004 and 2003, respectively. The Companyevaluated and assessed the expected near-term utilization ofNOLs, book and taxable income trends, available tax strategiesand the overall deferred tax position to determine the amountand timing of valuation allowance adjustments.During <strong>2005</strong>, the Company completed a comprehensiveand strategic internal corporate restructuring project.This restructuring focused on realigning the Company’ssubsidiary ownership on a geographic and functional basisand facilitated the consolidation of assets in a tax-efficientmanner, better positioning the Company to execute futurestrategic transactions. One of the indirect consequences of theinternal corporate restructuring was a deduction for a deemedliquidation of a subsidiary for tax purposes, which, as a result,increased the Company’s net operating losses by $1.0 billion.The Company establishes reserves for tax contingencieswhen, despite the belief that the Company’s tax returnpositions are fully supported, certain positions are likelyto be challenged and may not be fully sustained. The taxcontingency reserves are analyzed on a quarterly basis andadjusted based upon changes in facts and circumstances,such as the progress of federal and state audits, case lawand emerging legislation. The Company’s effective tax rateincludes the impact of tax contingency reserves and changesto the reserves, including related interest, as consideredappropriate by management. The Company establishes thereserves based upon management’s assessment of exposureassociated with permanent tax differences (e.g., tax depletionexpense) and certain tax sharing agreements. The Companyis subject to federal audits for several open years due to itsprevious inclusion in multiple consolidated groups and thevarious parties involved in finalizing those years. The taxcontingency reserve was increased by $45.0 million for the taxyear ended December <strong>31</strong>, <strong>2005</strong>. The tax contingency reservewas decreased for the year ended December <strong>31</strong>, 2003, by$10.0 million reflecting the reduction in exposure due to thecompletion of a federal audit.The total amount of undistributed earnings of foreignsubsidiaries for income tax purposes was approximately$156.0 million and $28.2 million at December <strong>31</strong>, <strong>2005</strong> and2004, respectively. On October 22, 2004, the American JobsCreation Act of 2004 (the “Act”) was signed into law. The Actcreated a temporary incentive for U.S. multinationals to repatriateaccumulated income earned outside the U.S. at an effectivetax rate of 5.25%. The Company did not repatriate foreignincome through December <strong>31</strong>, <strong>2005</strong>, and the Company hasnot provided deferred taxes on foreign earnings because suchearnings were intended to be indefinitely reinvested outsidethe U.S. Should the Company repatriate all of these earnings,a one-time income tax charge to the Company’s consolidatedresults of operations of up to $53 million could occur.The Company made no U.S. Federal tax payments forthe years ended December <strong>31</strong>, <strong>2005</strong> and 2003. The Companymade U.S. Federal tax payments totaling $1.4 million for the68 <strong>Peabody</strong> <strong>Energy</strong>
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