Income Taxes and Accounting for Uncertainty in Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes and Accounting for Uncertainty in Income Taxes

12.    Income Taxes and Accounting for Uncertainty in Income Taxes

Income Taxes

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported on our Consolidated Balance Sheets, as well as probable operating loss, tax credit and other carryforwards.  Deferred tax assets are offset by valuation allowances when we believe it is more likely than not that net deferred tax assets will not be realized.  We periodically evaluate our need for a valuation allowance.  Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

We file consolidated tax returns in the U.S. The income taxes of domestic and foreign subsidiaries not included in the U.S. tax group are presented in our consolidated financial statements based on a separate return basis for each tax paying entity.

As of December 31, 2011, we had no net operating loss carryforwards (“NOLs”) for federal income tax purposes and $13 million of NOL benefit for state income tax purposes.  The state NOLs begin to expire in the year 2020.  In addition, there are $5 million of tax benefits related to credit carryforwards which are partially offset by a valuation allowance and $14 million benefit of capital loss carryforwards which are fully offset by a valuation allowance. The credit carryforwards begin to expire in the year 2012.

As of December 31, 2011, we had benefits of foreign tax credits and net operating loss carryforwards of approximately $9 million, which are fully offset by a valuation allowance.

The components of the (provision for) benefit from income taxes are as follows:

	For the Years Ended December 31,
	2011			2010			2009
	(In thousands)
Current (provision) benefit:
Federal	$	(235,357	)	$	(287,523	)	$	(335,958	)
State	(27,523		)	(68,550		)	(36,762		)
Foreign	(4,199		)	—			(79		)
	(267,079		)	(356,073		)	(372,799		)
Deferred (provision) benefit:
Federal	(590,618		)	(227,024		)	15,771
State	(34,128		)	16,341			(373		)
Foreign	(4,939		)	—			—
Decrease (increase) in valuation allowance	1,758			9,283			(20,028		)
	(627,927		)	(201,400		)	(4,630		)
Total benefit (provision)	$	(895,006	)	$	(557,473	)	$	(377,429	)

The actual tax provisions for 2011, 2010 and 2009 reconcile to the amounts computed by applying the statutory Federal tax rate to income before taxes as follows:

	For the Years Ended December 31,
	2011		2010		2009
	% of pre-tax (income)/loss
Statutory rate	(35.0	)	(35.0	)	(35.0	)
State income taxes, net of Federal benefit	(1.7	)	(2.5	)	(2.8	)
Stock option compensation	—		0.3		(0.2	)
Other	(0.5	)	0.6		2.7
Decrease (increase) in valuation allowance	0.1		0.5		(2.0	)
Total benefit (provision) for income taxes	(37.1	)	(36.1	)	(37.3	)

Of our $2.411 billion of “Income (loss) before income taxes” on our Consolidated Statements of Operations and Comprehensive Income (Loss), approximately $28 million relates to our foreign operations.

The temporary differences, which give rise to deferred tax assets and liabilities as of December 31, 2011 and 2010, are as follows:

	As of December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
NOL, credit and other carryforwards	$	23,017		$	14,595
Unrealized losses on investments	48,452			49,555
Accrued expenses	95,903			256,033
Stock-based compensation	23,365			17,730
Deferred revenue	45,556			56,324
State taxes net of federal effect	4,917			29,599
Total deferred tax assets	241,210			423,836
Valuation allowance	(97,501		)	(73,126		)
Deferred tax asset after valuation allowance	143,709			350,710
Deferred tax liabilities:
Depreciation and amortization	(1,066,476		)	(701,497		)
Other long-term liabilities	(26,943		)	—
Total deferred tax liabilities	(1,093,419		)	(701,497		)
Net deferred tax asset (liability)	$	(949,710	)	$	(350,787	)
Current portion of net deferred tax asset	$	73,014		$	216,899
Current portion of net deferred tax liability		(48,310	)		—
Noncurrent portion of net deferred tax asset (liability)	(974,414		)	(567,686		)
Total net deferred tax asset (liability)	$	(949,710	)	$	(350,787	)

Accounting for Uncertainty in Income Taxes

In addition to filing federal income tax returns, we and one or more of our subsidiaries file income tax returns in all states that impose an income tax and a small number of foreign jurisdictions where we have immaterial operations.  We are subject to U.S. federal, state and local income tax examinations by tax authorities for the years beginning in 2002 due to the carryover of previously incurred net operating losses.  As of December 31, 2011, we are currently under a federal income tax examination for fiscal year 2008.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	For the Years Ended December 31,
Unrecognized tax benefit	2011			2010			2009
	(In thousands)
Balance as of beginning of period	$	193,320		$	224,029		$	226,528
Additions based on tax positions related to the current year	44,357			7,382			7,952
Additions based on tax positions related to prior years	34,762			11,800			3,665
Reductions based on tax positions related to prior years	(1,169		)	(45,197		)	(6,042		)
Reductions based on tax positions related to settlements with taxing authorities	(1,185		)	(493		)	(5,899		)
Reductions based on tax positions related to the lapse of the statute of limitations	(3,382		)	(4,201		)	(2,175		)
Balance as of end of period	$	266,703		$	193,320		$	224,029

We have $208 million in unrecognized tax benefits that, if recognized, could favorably affect our effective tax rate.  We do not expect any portion of this amount to be paid or settled within the next twelve months.

Accrued interest and penalties on uncertain tax positions are recorded as a component of “Other, net” on our Consolidated Statements of Operations and Comprehensive Income (Loss).  During the year ended December 31, 2011, we recorded $4 million in interest and penalty expense to earnings.  During the year ended December 31, 2010, we recorded $3 million in interest and penalty benefit to earnings.  During the year ended December 31, 2009, we recorded $9 million in interest and penalty expense to earnings.  Accrued interest and penalties were $17 million and $13 million at December 31, 2011 and 2010, respectively.  The above table excludes these amounts.