First Data 2007 Annual Report Download - page 118

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Successor Predecessor
December 31, 2007 2006
Deferred tax assets related to:
Reserves and other accrued expenses $ 51.4 $ 21.5
Pension obligations 41.6 58.8
Employee related liabilities 61.6 74.2
Unrealized securities and hedging (gain)/loss 64.9 —
Net operating losses and tax credit carryforwards 182.8 8.6
U.S. foreign tax credit on undistributed earnings 87.0 66.9
Total deferred tax assets 489.3 230.0
Valuation allowance (92.4) (38.4)
Realizable deferred tax assets 396.9 191.6
Deferred tax liabilities related to:
Property, equipment and intangibles (2,507.8) (411.7)
Investment in affiliates and other (23.1) (115.4)
Deferred revenues (3.0) (2.0)
Unrealized securities and hedging (gain)/loss — (8.3)
U.S. tax on foreign undistributed earnings (113.9) (27.2)
Foreign exchange (gain)/loss (11.8) (55.9)
Total deferred tax liabilities (2,659.6) (620.5)
Net deferred tax liabilities $ (2,262.7) $ (428.9)
Included in the changes in the deferred tax balances above from December 31, 2006 to December 31, 2007 are deferred tax assets and liabilities for
various acquisitions and for differences between the assigned fair market values and the tax bases of the assets and liabilities recognized in various purchase
business combinations.
As of December 31, 2007, the Company had recorded a valuation allowance of $92.4 million against U.S. foreign tax credits and foreign net operating
losses. The increase to the valuation allowance in 2007 was primarily due to a reevaluation of the future benefits to be realized from foreign tax credits
subsequent to the merger on September 24, 2007. It is more likely than not that the tax benefit of those deferred tax assets will not be realized due to statutory
limitations. Of the $92.4 million valuation allowance, $66.1 million, if subsequently reversed, would be recorded as a reduction to goodwill.
As of December 31, 2007, the Company had aggregate federal net operating loss carryforwards of approximately $350 million. If not utilized, these
carryforwards will expire in years 2008 through 2027.
As of December 31, 2007, the Company had aggregate foreign net operating loss carryforwards of approximately $124 million. Foreign net operating
loss carryforwards of $102 million, if not utilized, will expire in years 2008 through 2027. The remaining foreign net operating loss carryforwards of $22
million have an indefinite life.
As of December 31, 2007, the Company had aggregate state net operating loss carryforwards of approximately $134 million. If not utilized, these
carryforwards will expire in years 2008 through 2027.
As of December 31, 2007 the Company had foreign tax credit carryforwards of approximately $24 million. If not utilized, these carryforwards will
expire in the year 2017.
The Company adopted the provisions of FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes – An Interpretation of
FASB Statement No. 109" ("FIN 48"), on January 1, 2007. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes", and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The
interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
As a result of the implementation of FIN 48, the Company recorded a reduction to retained earnings of approximately $23 million and an increase to
goodwill of approximately $25 million effective January 1, 2007. Also upon adoption of FIN 48, the Company reclassified approximately $140 million of
deferred tax liabilities to income taxes payable to conform to the balance sheet presentation requirements of FIN 48. The Company expects the ongoing
application of FIN 48 may result in more significant discrete items being recognized from period to period.
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