Western Union 2008 Annual Report Download - page 66

WESTERN UNION
2008 Annual Report
6464
Western Union’s provision for income taxes consists of the following components (in millions):
Year Ended December 31, 2008 2007 2006
Current:
Federal $219.6 $284.9 $314.0
State and local 34.5 25.5 33.1
Foreign 49.7 50.5 61.1
Total current taxes 303.8 360.9 408.2
Deferred:
Federal 15.2 2.8 17.1
State and local (4.2) 0.8 1.4
Foreign 4.9 0.6 (5.6)
Total deferred taxes 15.9 4.2 12.9
$319.7 $365.1 $421.1
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, 2008 2007
Deferred tax assets related to:
Reserves and accrued expenses $ 45.4 $ 40.2
Pension obligations 39.5 11.8
Deferred revenue 3.1 4.4
Other 6.8 14.3
Total deferred tax assets 94.8 70.7
Deferred tax liabilities related to:
Property, equipment and intangibles 349.0 321.8
Other 15.9 12.5
Total deferred tax liabilities 364.9 334.3
Net deferred tax liability $270.1 $263.6
Uncertain Tax Positions
The Company has established contingency reserves for
material, known tax exposures, including potential tax
audit adjustments with respect to its international opera-
tions, which were restructured in 2003. The Company’s tax
reserves reflect management’s judgment as to the reso-
lution of the issues involved if subject to judicial review.
While the Company believes 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 financial 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 circumstances
(i.e. new information) surrounding a tax issue, and (ii) any
difference from the Company’s tax position as recorded
in the financial statements and the final 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 benefits represent the aggregate tax
effect of differences between tax return positions and the
amounts otherwise recognized in the Company’s financial
statements, and are reflected in “Income taxes payable”
in the Consolidated Balance Sheets. A reconciliation of
the beginning and ending amount of unrecognized tax
benefits, excluding interest and penalties, is as follows
(in millions):
2008 2007
Balance at January1, $251.4 $166.0
Increases—positions taken in current period (a) 93.8 78.0
Increases—positions taken in prior periods (b) 28.4 12.8
Decreases—positions taken in prior periods (7.9) —
Decreases—settlements with taxing authorities (0.2) (0.7)
Decreases—lapse of applicable statute of limitations (4.3) (4.7)
Balance at December31, $361.2 $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 benefits.