First Data 2014 Annual Report Download - page 29

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Investment gains and (losses)
$ 100.2
$ 2.4
$ (7.7)
Derivative financial instruments gains and (losses)
0.3
(24.4)
(91.4)
Divestitures, net
1.6
(5.4)
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Non-operating foreign currency gains and (losses)
59.1
(19.5)
4.8
Other income (expense)
$ 161.2 $ (46.9)
$ (94.3)
Investment gains and (losses) Gains in 2014 relate primarily to the sale of our 30% minority interest in EFS which resulted in a pretax gain of $98 million.
The net investment losses in 2012 relate primarily to the impairment of a strategic investment.
Derivative financial instruments gains and (losses) The net loss in 2013 was due to fair value adjustments for interest rate swaps and cross currency swaps
that are not designated as accounting hedges while the loss in 2012 was primarily driven by fair value adjustments related to interest rate swaps.
Non-operating foreign currency gains and (losses) Amounts represent net gains and losses related to currency translations on our intercompany loans and
euro-denominated debt. The gain during 2014 was driven by the U.S. dollar strengthening against the Euro.
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Income tax expense (benefit)
$ 82.1
$ 86.5
$ (224.0)
Effective income tax rate
(45.0)%
(14.3)%
29.8%
The effective tax rates in each year differ from the statutory rates primarily as a result of recognizing tax expense in jurisdictions with pretax income while
being precluded from recognizing deferred tax benefits on pre-tax losses in the U.S. and certain foreign jurisdictions that are subject to valuation allowances.
In each year, the negative impact from the valuation allowance was partially offset by us not having to record tax expense attributable to the noncontrolling
interest portion of pretax income from pass through entities.
Following the recognition of significant valuation allowances in 2012, we have regularly experienced substantial volatility in our effective tax rate in
interim periods and across years. This is due to deferred income tax benefits not being recognized in several jurisdictions, changes in the amount, mix, and
timing of pretax earnings in tax paying jurisdictions can have a significant impact on the overall effective tax rate. This interim and full year volatility is
likely to continue in future periods until the valuation allowances can be released.
Since 2007, we have been and continue to be in a net operating loss position in the U.S. federal and combined state jurisdictions. These net operating losses
caused our net deferred tax assets to exceed our net deferred tax liabilities as of December 31, 2014. This net deferred tax asset position, combined with the
history of operating losses is significant negative evidence that under the more likely than not criteria requires us to record a valuation allowance against our
net deferred tax assets. Further, we are not able to record a benefit related to tax losses in many separate filing states and certain foreign countries, requiring
the establishment of valuation allowances.
Despite the net operating loss position discussed above, we continue to incur income tax expense in some states for which we file returns on a separate entity
basis and in certain foreign countries. Generally, these foreign income taxes would result in a foreign tax credit in the U.S. However, due to limitations placed
by the U.S. foreign tax credit rules, we have also established a partial valuation allowance against our foreign tax credits.
Our liability for unrecognized tax benefits was approximately $236 million as of December 31, 2014. We anticipate it is reasonably possible that our liability
for unrecognized tax benefits may decrease by approximately $122 million within the next twelve months as a result of the possible closure of federal tax
audits, potential settlements with certain states and foreign countries, and the lapse of the statute of limitations in various state and foreign jurisdictions.
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