Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now proceed with the analyst portion of the question-and-answer session. (Operator Instructions) Our first question comes from the line of John Murphy from Merrill Lynch. Please proceed.
John Murphy - Merrill Lynch
Good morning, Fritz.
Fritz Henderson
Hi, John.
John Murphy - Merrill Lynch
Just a quick technical question, first, on a DTA tax allowances here. If you look at the technical measurement for this on a trailing basis, and we step forward, I mean, what are the ceilings on -- or what is the ceiling on future earnings? I mean, you've had some pretty big losses in 2005, so I would imagine the technical ceiling on earnings going forward, based on this 12-quarter measurement, is pretty high going forward. Is that correct?
Fritz Henderson
Did you say ceiling or feeling?
John Murphy - Merrill Lynch
Ceiling.
Fritz Henderson
Okay. Well, clearly, if you do a 12 quarter trailing average, the inclusion of '05 in any 12-quarter trailing average is a significant drag. But I'm not sure I got your question. So why don't you try again?
John Murphy - Merrill Lynch
So meaning that there is I mean, even if you had some massive improvement in pre-tax income in the US next year, there is the very good chance that this DTA allowance would not be reversed?
Fritz Henderson
Yeah. In order for us reverse the DTA allowance, let me see if I can't touch on this directly, we would need to see three-year cumulative historical losses turn into three-year historical cumulative profits. So that's the very first thing we would want to see. The second thing you'd want to see is you'd want to see some expectation of continued strong results. You'd want to have some expectation of continued favorable results before you would consider removing the valuation allowance.
John Murphy - Merrill Lynch
Okay. So, inthe interim, we'd look at a tax rate inNorth America of 0%, and that corporate other line would return to more normal level. Is that a correct assumption?
Fritz Henderson
Yeah. What we did here in the quarter and candidly, we need to consider how we want to handle the fourth quarter. So, I would say, stay tuned. But what we did here in this quarter is we held the tax rates in the automotive businesses constant so that we could provide some measure of comparability year-over-year.
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