ADP 2008 Annual Report Download - page 64

The Company has estimated foreign net operating loss carry-forwards of approximately $110.7 million as of June 30, 2008, of which $30.5
million expires in 2010 through 2022 and $80.2 million has an indefinite utilization period. In addition, the Company has estimated Federal net
operating loss carry-forwards of acquired companies of approximately $54.8 million as of June 30, 2008, which expires in 2009 through 2026.
There is an annual limitation pursuant to Internal Revenue Code section 382 on the utilization of the Federal net operating loss carry-forwards
of approximately $25.4 million per year. The Company has estimated state net operating loss carry-forwards of approximately $235.0 million
as of June 30, 2008, which expire in 2009 through 2026.
The Company has recorded valuation allowances of $44.4 million and $31.2 million at June 30, 2008 and 2007, respectively, to reflect the
estimated amount of domestic and foreign deferred tax assets that may not be realized. A portion of the valuation allowances in the amounts of
approximately $4.7 million and $6.6 million at June 30, 2008 and 2007, respectively, relate to net deferred tax assets which were recorded in
purchase accounting. Any recognition of net deferred tax assets in future years will be a reduction to goodwill until the adoption of SFAS No.
141R. Subsequent to the adoption of SFAS No. 141R, any such adjustments in future years will be recorded to our Provision for Income Taxes
on the Statements of Consolidated Earnings.
Income tax payments were approximately $755.7 million, $718.2 million, and $601.8 million for fiscal 2008, 2007 and 2006, respectively.
On July 1, 2007, the Company adopted the provisions of FIN 48. As a result of the adoption, the Company recorded a net decrease to retained
earnings of $11.7 million, as well as a corresponding increase to other liabilities on the Consolidated Balance Sheets. Among other things, FIN
48 requires that a liability associated with an unrecognized tax benefit be classified as a long-term liability, except for the amount for which a
cash payment is anticipated within one year. Therefore, upon adoption, $100.6 million of tax liabilities were reclassified from other current
liabilities to other liabilities on the Consolidated Balance Sheets.
As of July 1, 2007, the Company’ s liabilities for unrecognized tax benefits, which include interest and penalties, were $350.2 million. The
amount that, if recognized, would impact the effective tax rate is $152.0 million. The remainder, if recognized, would principally affect
deferred taxes.
As of June 30, 2008, the Company’ s liabilities for unrecognized tax benefits, which include interest and penalties, were $404.2 million. The
amount that, if recognized, would impact the effective tax rate is $171.2 million. The remainder, if recognized, would principally affect
deferred taxes.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
Subsequent to the adoption of FIN 48, interest expense and penalties associated with uncertain tax positions have been recorded in the
provision for income taxes on the Statements of Consolidated Earnings. Prior to the adoption of FIN 48, interest expense was recorded in
selling, general and administrative expenses. During the fiscal years ended June 30, 2008, 2007 and 2006, the Company recorded interest
expense of $18.4 million, $11.5 million and $13.4 million, respectively. At July 1, 2007, the Company had accrued interest of $97.6 million,
recorded within other liabilities on the Consolidated Balance Sheets. At June 30, 2008, the Company had accrued interest of $117.6 million
recorded on the Consolidated Balance Sheets, of which $53.5 million was recorded within income taxes payable, and the remainder was
recorded within other liabilities. At July 1, 2007, the Company had accrued penalties of $19.8 million recorded within other liabilities on the
Consolidated Balance Sheets. At June 30, 2008, the Company had accrued penalties of $26.9 million, of which $23.8 million was recorded
within income taxes payable, and the remainder was recorded within other liabilities on the Consolidated Balance Sheets.
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Unrecognized tax benefits at July 1, 2007 $350.2
Additions for tax positions of the fiscal year ended June 30, 2008 23.6
Reductions for tax positions of the fiscal year ended June 30, 2008 -
Additions for tax positions of periods prior to the fiscal year ended June 30, 2008 43.2
Reductions for tax positions of periods prior to the fiscal year ended June 30, 2008 (11.5)
Settlements with tax authorities (1.1)
Expiration of the statute of limitations (4.0)
Impact of foreign exchange rate fluctuations 3.8
Unrecognized tax benefits at June 30, 2008 $404.2