Seigel & Associates Releases
The Second Quarter Edition of
The Seigel Tax Reserve Report

  (Click the image above
      to get the Report
        pdf - 1.0 MB)

The Report, which is issued quarterly, provides comprehensive analysis and review of tax reserve disclosures and financial data contained in the financial statements of major corporations filed with their SEC annual reports.

The second edition of the Report covers 670 corporations that have annual revenues of $2 billion or more that filed their SEC reports during the first or second quarter of 2008. Subsequent Reports will cover annual SEC reports filed by the same revenue sized corporations during the applicable quarter.

In the Report, we have evaluated the extent and quality of FIN 48 disclosures made by these corporations on a company-by-company basis and assign each a Seigel Index score reflecting the degree of satisfactory compliance with FIN 48’s disclosure mandates. The Report also contains significant quantitative data dealing with tax reserves and related financial information.

The Executive Summary appears below:

I. Overall Data

This quarterly update of The Seigel Tax Reserve Report reviews the cumulative FIN 48 data in the financial statements of the 670 public companies with revenues of at least $2 billion that filed annual reports with the SEC in the first two quarters of 2008. The 601 companies that reported in the first quarter were discussed in the First Quarter Report. They had aggregate revenues of $7.8 trillion and total assets of $25 trillion. The 69 companies added during the second quarter had aggregate revenues of $1.2 trillion and total assets of $680 billion. We note and discuss second quarter data where it differs markedly from patterns established in the first quarter data.

For the 670 reporting companies:

Aggregate annual revenues were $9.0 trillion and assets were $25.6 billion.

Total tax reserves were $165 billion and median tax reserves were $55 million.

Total tax reserves represented 1.8% of revenues and 0.6% of assets.

The median ratio of tax reserves to revenues was 0.9% and to assets was 0.7%.

Adoption of FIN 48 increased total tax reserves by $2.3 billion. The median impact on
    tax reserves was $0.

Adoption of FIN 48 decreased shareholders’ equity by $2.7 billion. The median impact
    was $0.

Total tax reserves of reporting companies increased by $2.5 billion between the date of
    adoption of FIN 48 and the close of the fiscal year. The median increase was $0.6
    million.

In the second quarter, 38 of the 69 reporting companies were retailers, so the data is skewed by this disproportionately large segment. Overall, these companies only represent 10% of the total number of reporting companies in the first six months of the year, so their overall impact is relatively minor. For these 69 companies:

Aggregate annual revenues were $1.2 trillion and assets were $680 billion.

Total tax reserves were $10 billion and median tax reserves were $56 million.

Total tax reserves represented 0.8% of revenues and 1.5% of assets.

The median ratio of tax reserves to revenues was 0.7% and to assets was 1.3%.

Adoption of FIN 48 increased total tax reserves by $961 million. The median impact on
    tax reserves was $1.0 million.

Adoption of FIN 48 decreased shareholders’ equity by $904 million. The median impact
    was a decrease of $1.0 million.

Total tax reserves increased by $686 million between the date of adoption of FIN 48
    and the close of the fiscal year. The median increase was $0.8 million.

II. Disclosure Compliance

On an overall basis the 670 reporting companies covered by this Report had a Seigel Index of 91.5.

471 companies attained a Seigel Index score of at least 100, denoting satisfactory
    compliance with FIN 48’s disclosure requirements. 199 did not.

Companies were grouped into 5 segments by revenue size. No revenue group attained
    a Seigel Index of 100.

By revenue size, the largest companies – those with revenues of at least $25 billion –
    had the best Seigel Index score of about 95.

Smaller revenue sized companies – those in the $2 billion to $5 billion range – had the
    lowest Seigel Index score of 90.

The greatest area of noncompliance was the “12-month look-forward” rule of FIN 48,
    where 1 of every 9 companies failed to provide any disclosure. This was less of an issue
    in the second quarter where it was eclipsed by the lack of disclosure concerning the
    amount of interest and penalties expensed in the current year.

III. Quantitative Tax Reserve Data

The analysis of the data disclosed by the reporting companies reveals that:

The result of the adoption of FIN 48 was: 327 companies increased their tax reserves
    by a total of $9.2 billion with a median increase of $7.4 million; 169 companies
    decreased their tax reserves by a total of $6.9 billion with a median decrease of $7.0
    million. Thus, the adoption of FIN 48 prompted changes to existing tax reserves
    totaling $16.1 billion.

The adoption of FIN 48 also resulted in adjustments to shareholders’ equity by 492
    companies for a net decrease of $2.7 billion.

The total amount of tax reserves at year end was $165 billion. This is up from the
    $163 billion recorded at the beginning of the year.

For the year 2007: 360 companies increased their tax reserves by a total of $16.1
    billion with a median increase of $10.9 million; 249 companies decreased their tax
    reserves by a total of $13.5 billion with a median decrease of $11.1 million.

The net increase in tax reserves due to the adoption of FIN 48 plus the changes in
    2007 totaled $4.8 billion.

The median tax reserve for 2007 was $55.2 million, but ranged from a low of zero to a
    high of $6.3 billion.

Accrued interest and penalties amounted to $28.5 billion.

The amount of a company’s tax reserves is loosely correlated with its size.

Click here for a copy of the first quarter edition of
The Seigel Tax Reserve Report

Click here for a copy of the second quarter edition of
The Seigel Tax Reserve Report

Click here for a copy of the third quarter edition of
The Seigel Tax Reserve Report

Click here for a copy of the 2008 full year update of
The Seigel Tax Reserve Report