Western Union 2014 Annual Report Download - page 258

2014 FORM 10-K
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
120
The valuation allowances are primarily the result of uncertainties regarding the Company's ability to recognize tax benefits
associated with certain foreign net operating losses, certain U.S. foreign tax credit carryforwards, and certain foreign undistributed
earnings. Such uncertainties include generating sufficient income, generating sufficient U.S. foreign tax credit limitation related
to passive income, and demonstrating the ability to distribute certain foreign earnings. Changes in circumstances, or the
identification and implementation of relevant tax planning strategies, could make it foreseeable that the Company will recover
these deferred tax assets in the future, which could lead to a reversal of these valuation allowances and a reduction in income tax
expense.
Uncertain Tax Positions
The Company has established contingency reserves for a variety of material, known tax exposures. As of December 31, 2014,
the total amount of tax contingency reserves was $96.8 million, including accrued interest and penalties, net of related items. The
Company's tax reserves reflect management's judgment as to the resolution of the issues involved if subject to judicial review or
other settlement. 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. Such resolution could materially increase or decrease income tax expense in the Company's consolidated financial
statements in future periods and could impact operating cash flows.
Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts
otherwise recognized in the Company's consolidated 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):
2014 2013
Balance as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117.5 $ 103.2
Increases - positions taken in current period (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 18.5
Increases - positions taken in prior periods (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 15.6
Decreases - positions taken in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.9)(8.7)
Decreases - settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.1)(4.1)
Decreases - lapse of applicable statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.2)(7.0)
Decreases - effects of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.8) —
Balance as of December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93.4 $ 117.5
____________
(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.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $82.4 million and
$108.9 million as of December 31, 2014 and 2013, respectively, excluding interest and penalties.
The Company recognizes interest and penalties with respect to unrecognized tax benefits in "Provision for income taxes" in
its Consolidated Statements of Income, and records the associated liability in "Income taxes payable" in its Consolidated Balance
Sheets. The Company recognized $1.5 million, $(1.8) million and $0.5 million in interest and penalties during the years ended
December 31, 2014, 2013 and 2012, respectively. The Company has accrued $15.1 million and $17.7 million for the payment of
interest and penalties as of December 31, 2014 and 2013, respectively.