Western Union 2011 Annual Report Download - page 37

Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.
Our future effective tax rates could be adversely affected by changes in tax laws, both domestically and
internationally. From time to time, the United States Congress and foreign, state and local governments consider
legislation that could increase our effective tax rates. If changes to applicable tax laws are enacted, our results of
operations could be negatively impacted.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to
impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An
unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of
operations. We have established contingency reserves for a variety of material, known tax exposures. As of
December 31, 2011, the total amount of unrecognized tax benefits is a liability of $144.4 million, including
accrued interest and penalties. Our reserves reflect our judgment as to the resolution of the issues involved if
subject to judicial review. While we believe that our 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 our related reserve, and such resolution could have a material effect on our effective tax
rate, financial condition, results of operations and cash flows in the current period and/or future periods. With
respect to these reserves, our 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. Such resolution could increase or decrease income tax expense in our
consolidated financial statements in future periods and could impact our operating cash flows. For example, we
recently reached an agreement with the United States Internal Revenue Service (“IRS”) resolving substantially
all of the issues related to the restructuring of our international operations in 2003, which resulted in a tax benefit
of $204.7 million related to the adjustment of reserves associated with this matter and will require cash payments
to the IRS and various state tax authorities of approximately $190 million. See Item 7 of Part II, Management’s
Discussion and Analysis of Financial Condition and Results of Operations; Capital Resources and Liquidity.
We receive services from third-party vendors that would be difficult to replace if those vendors ceased
providing such services which could cause temporary disruption to our business.
Some services relating to our business, such as software application support, the development, hosting and
maintenance of our operating systems, check clearing, and processing of returned checks are outsourced to third-
party vendors, which would be difficult to replace quickly. If our third-party vendors were unwilling or unable to
provide us with these services in the future, our business and operations could be adversely affected.
Material changes in the market value or liquidity of the securities we hold may adversely affect our results of
operations and financial condition.
As of December 31, 2011, we held $1.3 billion in investment securities, substantially all of which are state and
municipal debt securities. The majority of this money represents the principal of money transfers sent by
consumers and money orders issued by us to consumers in the United States. We regularly monitor our credit
risk and attempt to mitigate our exposure by investing in highly-rated securities and by diversifying our
investments. As of December 31, 2011, the majority of our investment securities had credit ratings of “AA–” or
better from a major credit rating agency. Despite those ratings, it is possible that the value of our portfolio may
decline in the future due to any number of factors, including general market conditions, credit issues, the viability
of the issuer of the security, failure by a fund manager to manage the investment portfolio consistently with the
fund prospectus or increases in interest rates. Any such decline in value may adversely affect our results of
operations and financial condition.
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