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I am wondering what to do about taxes in the case of extraordinary items. KCI had a lawsuit resolved in 2002, they were awarded 250,000 - 175,000 in 2002, and 75,000 in 2003. There have been two of these since 1999, so it seems very much like an extraordinary item. If I exclude this $175,000, I am not sure how to handle the taxes, this gives a deferred tax liability of 66,838.There is a non-gaap income statement with the 2003 report, many of the numbers differ, but they add up to the same amount of Total Revnue, gross profit, etc.They subtracted the deferred tax liability from the "Income Taxes" line of the Income statement. I didn't realize that the Income Taxes line of the Income statement included the Deferred taxes from the Balance sheet.But is thie the right thing to do? I set current deferred income taxes to zero, and subtract this amount from the "Income Taxes" line of the income statement?I hope this is clear.Dot
1. KCI...do you mean Kinetic Concepts?2. Also, if you provide a link to the 10-K this would save me a few minutes, which is appreciated.
Hi!Yes, Kinetic Concepts, the negative pressure technology wound company.The 2003 report (which has the non-gaap income statement) is athttp://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipa...The statement is on page 38.What I am thinking is that I should reduce taxes, deferred taxes and net revenues by the deferred tax asset. This would affect taxes and working capital (since I am excluding the reward).They settled the second case out of court in 2005, which means they paid money out. Not sure how to handle this one at all. They paid 75 million, or 47.4 million net of taxes. If I reverse this, I think I should reverse the 75 (or 72 million, after reserves), and keep the taxes the same, since they would have to pay them anyway? The company report for this year is:http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipa...The financial reports are all at:http://investor.kci1.com/phoenix.zhtml?c=64595&p=irol-se...Thanks so much! I hope you have an amazing thanksgiving!Dot
I am going to have to give you a partial answer, as I do not have the time to study all the details. Let's focus on 2005. They had a $72M charge for litigation expense, as you know. Since this is a nonoperating and nonrecurring expense, exclude it from the defensive income statement. And since this $72M is also pretax, you need to adjust the provision for taxes. In the enterprising income statement, you reverse the charge, so that the $72M comes off the income statement but is added to enterprising capital. That $72M belongs to stockholders, so it is a form of invested capital.Hewitt
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