First Data 2007 Annual Report Download - page 117

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's effective tax rates from continuing operations differ from statutory rates as follows:
Successor (1) Predecessor
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year ended December 31,
2006 2005
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit 0.8 2.2 2.2 1.9
Foreign rate differential (1.8) (2.6) (4.3) (1.3)
Interest earned on municipal investments 7.6 (18.6) (14.6) (15.3)
Dividend exclusion 0.9 (1.9) (1.2) (1.3)
Valuation allowances (5.6) (0.3) 2.3 0.6
Prior year income tax return true-ups 0.0 2.3 0.0 0.0
Non-deductible merger related expenses (0.1) 3.2 0.0 0.0
Other 0.0 2.0 0.0 (0.7)
Effective tax rate 36.8% 21.3% 19.4% 18.9%
(1) The change from pretax income in the predecessor period from January 1, 2007 through September 24, 2007 to a pretax loss in the successor period
from September 25, 2007 through December 31, 2007 resulted in this tax rate representing the rate of tax benefit to be recognized in the successor
period rather than a tax expense in the predecessor periods. This causes a general shift in several components of the tax rate reconciliation to have the
opposite effect on the tax rate than in previous periods.
FDC's income tax provisions (benefits) consist of the following components:
Successor Predecessor
Period from
September 25
through
December 31,
2007
Period from
January 1
through
September 24,
2007
Year Ended December 31,
(in millions) 2006 2005
Current
Federal $ (29.7) $ 63.3 $ 193.1 $ 181.8
State and local 7.5 39.7 39.3 31.8
Foreign 13.7 48.5 32.1 15.0
(8.5) 151.5 264.5 228.6
Deferred
Federal (153.2) (8.3) (44.9) (35.4)
State and local (13.3) (3.4) (5.1) (3.2)
Foreign (1.1) (14.0) (10.8) (1.7)
(167.6) (25.7) (60.8) (40.3)
$ (176.1) $ 125.8 $ 203.7 $ 188.3
Income tax refunds received, net of tax payments, of $108 million in the successor period from September 25, 2007 through December 31, 2007 are
more than the current benefit primarily due to the actual receipt of tax refunds related to the predecessor period from January 1, 2007 through September 24,
2007 and the year ended December 31, 2006. Income tax payments of $56 million in the predecessor period from January 1, 2007 through September 24,
2007 are less than current expense primarily due to increased tax benefits associated with the exercise of stock options recorded directly to equity resulting in
a federal net operating loss carryback for a refund. Income tax payments of $86.0 million in 2006 are less than current expense primarily due to increased tax
benefits associated with the exercise of stock options recorded directly to equity for 2006 and 2005 overpayment applied to 2006. Income tax payments of
$262.0 million in 2005 are more than current expense primarily due to tax payments related to prior year tax liability and 2005 overpayment.
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book and tax bases of the
Company's assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be
realized. Net deferred tax liabilities are included in "Accounts payable and other liabilities" in FDC's Consolidated Balance Sheets. The following table
outlines the principal components of deferred tax items (in millions):
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