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

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      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 third edition of the Report covers 724 corporations that have annual revenues of $2 billion or more that filed their SEC reports during the first, second, or third 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 724 public companies with revenues of at least $2 billion that filed annual reports with the SEC in the first three quarters of 2008. The 601 companies that reported in the first quarter were discussed in the First Quarter Report. The 69 companies that reported in the second quarter were discussed in the Second Quarter Report, along with analysis of the cumulative reporting from the 670 companies. The reporting companies had aggregate revenues of $9.7 trillion and total assets of $26.3 trillion. The 54 companies added during the third quarter had aggregate revenues of $706 billion and total assets of $668 billion. We note and discuss third quarter data where it differs markedly from patterns established in the first two quarters of data.

Because the 601 companies reporting in the first quarter represent 83% of the total 724 companies, the incremental changes to the data by second and third quarter reporting companies are relatively immaterial. The relationships and patterns that we saw established in the first quarter continue for the aggregate data throughout the subsequent two quarters.

For the 724 reporting companies:

Aggregate annual revenues were $9.7 trillion and assets were $26.3 trillion.

Total tax reserves were $181 billion and median tax reserves were $56 million.

Total tax reserves represented 1.9% of revenues and 0.7% 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 $3.2 billion. The median impact on
    tax reserves was $0.

Adoption of FIN 48 decreased shareholders’ equity by $3.8 billion. The median decrease
    was $0.5 million.

Total tax reserves of reporting companies increased by $2.7 billion between the date of
    adoption of FIN 48 and the close of the fiscal year. The median increase was $2.2
    million.

The 54 companies added during the third quarter represent 7% of the total number of reporting companies in the first nine months of the year, so, as previously noted, their overall impact is relatively minor. For these 54 companies:

Aggregate annual revenues were $706 billion and assets were $668 billion.

Total tax reserves were $15 billion and median tax reserves were $83 million.

Total tax reserves represented 2.2% of revenues and 2.3% of assets.

The median ratio of tax reserves to revenues was 1.1% and to assets was 1.3%.

Adoption of FIN 48 increased total tax reserves by $945 million. The median impact on
    tax reserves was $0.3 million.

Adoption of FIN 48 decreased shareholders’ equity by $1.1 billion. The median impact
    was a decrease of $0.2 million.

Total tax reserves decreased by $2.1 billion between the close of the prior fiscal year
    and the close of the 2007/2008 fiscal year. The median increase was $3.0 million.

II. Disclosure Compliance

On an overall basis the 724 reporting companies had a Seigel Index of 91.3. This is a drop from the second quarter, where the Seigel Index was 91.5.

503 companies attained a Seigel Index score of at least 100, denoting satisfactory
    compliance with FIN 48’s disclosure requirements. 221 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. Continuing a trend from
    the second quarter, this issue was less prevalent than in the first quarter. In the
    second and third quarters, the lack of disclosure concerning the amount of interest and
    penalties expensed in the current year was the dominant area of non-compliance.

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: 354 companies increased their tax reserves
    by a total of $10.5 billion with a median increase of $7.9 million; 183 companies
    decreased their tax reserves by a total of $7.3 billion with a median decrease of $7.0
    million. Thus, the adoption of FIN 48 prompted changes to existing tax reserves
    totaling $17.8 billion.

The adoption of FIN 48 also resulted in adjustments to shareholders’ equity by 531
    companies for a net decrease of $3.8 billion.

The total amount of tax reserves at year end was $181 billion. This is down $640
    million from the beginning of the year opening balance.

For the 2007/2008 fiscal year: 397 companies increased their tax reserves by a total
    of $17.5 billion with a median increase of $10.9 million; 266 companies decreased
    their tax reserves by a total of $18.2 billion with a median decrease of $11.5 million.

The net increase in tax reserves due to the adoption of FIN 48 plus the changes during
    the fiscal year totaled $2.7 billion.

The median tax reserve at the end of the fiscal year was $55.9 million, but ranged
    from a low of zero to a high of $6.3 billion.

Accrued interest and penalties amounted to $32.1 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