Western Union 2007 Annual Report Download - page 67

65
Notes to Consolidated Financial Statements
Except for increases for recurring accruals on existing uncer-
tain tax positions, the Company has identifi ed no other uncertain
tax position for which it is reasonably possible that the total
amount of unrecognized tax benefi ts will signifi cantly increase
or decrease within 12 months.
The Company and its subsidiaries fi le tax returns for the United
States, for multiple states and localities, and for various non-United
States jurisdictions, and the Company has identifi ed the United
States and Ireland as its two major tax jurisdictions. The United
States federal income tax returns which include the Company
are eligible to be examined for the years 2002 and forward. The
Internal Revenue Service (“IRS”) currently is conducting audits of
the United States federal consolidated income tax returns of First
Data for the years 2002 through 2004, which returns include the
taxable results of the Company and its subsidiaries. The Company
currently contemplates that the IRS will complete the examination
phase of its audits for these years during 2008. The Irish income
tax returns of certain subsidiaries for the years 2003 and forward
are eligible to be examined by the Irish tax authorities, although
no examinations have commenced.
At December 31, 2007, no provision had been made for
United States federal and state income taxes on foreign earnings
of approximately $1.2 billion, which are expected to be reinvested
outside the United States indefi nitely. Upon distribution of those
earnings in the form of dividends or otherwise, the Company
would be subject to United States income taxes (subject to an
adjustment for foreign tax credits), state income taxes and pos-
sible withholding taxes payable to various foreign countries.
Tax Allocation Agreement with First Data
The Company and First Data each are liable for taxes imposed
on their respective businesses both prior to and after the Spin-
off. If such taxes have not been appropriately apportioned
between First Data and the Company, subsequent adjustments
may occur that may impact the Company’s fi nancial position or
results of operations.
Also under the tax allocation agreement, with respect to
taxes and other liabilities that result from a fi nal determination
that is inconsistent with the anticipated tax consequences of the
Spin-off (as set forth in the private letter ruling and relevant tax
opinion), (“Restructuring Taxes”), the Company will be liable to
First Data for any such Restructuring Taxes attributable solely to
actions taken by or with respect to the Company. In addition,
the Company will also be liable for 50% of any Restructuring
Taxes (i) that would not have been imposed but for the existence
of both an action by the Company and an action by First Data
or (ii) where the Company and First Data each take actions that,
standing alone, would have resulted in the imposition of such
Restructuring Taxes. The Company may be similarly liable if it
breaches certain representations or covenants set forth in the
tax allocation agreement. If the Company is required to indemnify
First Data for taxes incurred as a result of the Spin-off being
taxable to First Data, it likely would have a material adverse effect
on the Company’s business, fi nancial position and results of
operations. First Data generally will be liable for all Restructuring
Taxes, other than those described above.
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9. Employee Benefi t Plans
Defi ned Contribution Plans
The Company’s Board of Directors approved The Western Union
Company Incentive Savings Plan (“401(k)”) as of September 29,
2006, covering eligible non-union employees on the United
States payroll of Western Union after the spin-off date. Employees
that make voluntary contributions to this plan receive up to a 4%
Western Union matching contribution. All matching contributions
are immediately 100% vested.
The Company also has a 401(k) plan covering its union
employees. Western Union contributes 4% of eligible employee
compensation. Union employees who make voluntary contribu-
tions receive up to a 1.5% Western Union matching contribution
in addition to a $650 per employee lump-sum contribution
per year.
The Company also administers 15 defi ned contribution plans
in various countries globally on behalf of approximately 500
employee participants as of December 31, 2007. Such plans
have vesting and employer contribution provisions that vary
by country.
In addition, Western Union’s Board of Directors adopted a
non-qualifi ed deferred compensation plan for highly compen-
sated employees. The plan provides tax-deferred contributions,
matching and the restoration of Company matching contributions
otherwise limited under the 401(k).
Prior to the spin-off from First Data, eligible full-time non-
union employees of the Company were covered under a First
Data sponsored defi ned contribution incentive savings plan.
Employees who made voluntary contributions to this plan,
received up to a 3% Western Union matching contribution,
service related contributions of 1.5% to 3% of eligible employee
compensation, certain other additional employer contributions,
and additional discretionary Company contributions. In addition,
First Data provided non-qualifi ed deferred compensation plans
for certain highly compensated employees. These plans provided
tax-deferred contributions, matching and the restoration of
Company contributions under the defi ned contribution plans
otherwise limited by IRS or plan limits.
The aggregate amount charged to expense in connection
with all of the above plans was $11.6 million, $10.8 million and
$9.7 million during the years ended December 31, 2007, 2006
and 2005, respectively.
Defi ned Benefi t Plans
The Company has two frozen defi ned benefi t pension plans. No
contributions were made by First Data or Western Union during
the years ended December 31, 2007, 2006 and 2005. As part of
the Distribution, Western Union is responsible for any remaining
underfunded pension obligations. Western Union is not required
to contribute to the plans in 2008. A September 30 measurement
date is used for the Company’s plans. Thus, during the third
quarter of each year, management reviews and if necessary,
adjusts the assumptions associated with its pension plans. During
2008, in connection with the adoption of SFAS No. 158, the
measurement dates for the Company’s pension plans will be
changed to December 31.