Western Union 2007 Annual Report Download - page 66

64
WESTERN UNION 2007 Annual Report
Uncertain Tax Positions
The Company has established contingency reserves for material,
known tax exposures, including potential tax audit adjustments
with respect to its international operations, which were restruc-
tured in 2003. The Company’s tax reserves refl ect management’s
judgment as to the resolution of the issues involved if subject to
judicial review. While the Company believes that its reserves are
adequate to cover reasonably expected tax risks, there can be
no assurance that, in all instances, an issue raised by a tax authority
will be resolved at a fi nancial cost that does not exceed its related
reserve. With respect to these reserves, the Company’s income
tax expense would include (i) any changes in tax reserves arising
from material changes during the period in the facts and circum-
stances (i.e. new information) surrounding a tax issue, and (ii)
any difference from the Company’s tax position as recorded in
the fi nancial statements and the fi nal resolution of a tax issue
during the period.
The Company adopted the provisions of FIN 48 on January
1, 2007. The cumulative effect of applying this interpretation
resulted in a reduction of $0.6 million to the January 1, 2007
balance of retained earnings.
Unrecognized tax benefi ts represent the aggregate tax effect
of differences between tax return positions and the amounts
otherwise recognized in the Company’s fi nancial statements, and
are refl ected in “Income taxes payable” in the Consolidated
Balance Sheets. A reconciliation of the beginning and ending
amount of unrecognized tax benefi ts, excluding interest and
penalties, is as follows (in millions):
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book
and tax bases of Western Union’s assets and liabilities. The following table outlines the principal components of deferred tax items
(in millions):
December 31, 2007 2006
Deferred tax assets related to:
Reserves and accrued expenses $ 40.2 $ 24.0
Pension obligations 11.8 21.6
Deferred revenue 4.4 6.2
Other 14.3 8.3
Total deferred tax assets 70.7 60.1
Deferred tax liabilities related to:
Property, equipment and intangibles 321.8 325.2
Other 12.5 9.7
Total deferred tax liabilities 334.3 334.9
Net deferred tax liability $263.6 $274.8
Total
Balance at January 1, 2007 $166.0
Increases — positions taken in current period(a) 78.0
Increases — positions taken in prior periods(b) 12.8
Decreases — settlements with taxing authorities (0.7)
Decreases — lapse of applicable statute of limitations (4.7)
Balance at December 31, 2007 $251.4
(a) Includes recurring accruals for issues which initially arose in previous periods.
(b) Changes to positions taken in prior periods relate to changes in estimates used to calculate prior period unrecognized tax benefi ts.
A substantial portion of the Company’s unrecognized tax benefi ts
relate to the 2003 restructuring of the Company’s international
operations whereby the Company’s income from certain foreign-
to-foreign money transfer transactions has been taxed at relatively
low foreign tax rates compared to the Company’s combined
federal and state tax rates in the United States. The total amount
of unrecognized tax benefi ts that, if recognized, would affect the
effective tax rate was $243.2 million and $156.2 million as of
December 31, 2007 and January 1, 2007, respectively.
The Company recognizes interest and penalties with respect
to unrecognized tax benefi ts in income tax expense and records
the associated liability in “Income taxes payable” in its Consoli-
dated Balance Sheets. During the years ended December 31,
2007, 2006 and 2005, the Company recognized $13.5 million,
$5.6 million and $1.9 million, respectively, in interest and penal-
ties. The Company had $24.8 million and $12.3 million for the
payment of interest and penalties accrued at December 31, 2007
and 2006, respectively.