Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

The following summarizes our income tax benefit (provision) (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Total current income tax provision	$	(1,582	)	$	(6,942	)	$	(2,179	)	$	(5,353	)
Total deferred income tax provision		(888	)		(13,477	)		(6,873	)		(30,429	)
Total income tax provision		(2,470	)		(20,419	)		(9,052	)		(35,782	)
Income tax provision included in income from discontinued operations		(8,233	)		(10,965	)		(11,593	)		(23,831	)
Income tax benefit (provision) on income from continuing operations	$	5,763		$	(9,454	)	$	2,541		$	(11,951	)

The deferred income tax provisions for the three and six months ended June 30, 2012 include an expense of $1.5 million to increase our valuation allowance against net deferred tax assets. Based on all available evidence, we determined that as of June 26, 2012, the date when the assets and liabilities of SS/L have been reclassified as assets held for sale and liabilities held for sale on our condensed consolidated balance sheet, it was more likely than not that we would not realize a future benefit from that portion of our deferred tax assets.

The following summarizes amounts for uncertain tax positions (“UTPs”) included in our income tax provision (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Current provision for UTPs	$	(1,375	)	$	(5,123	)	$	(1,913	)	$	(2,479	)
Deferred benefit for UTPs		260			3,578			438			4,267
Total income tax (provision) benefit for UTPs		(1,115	)		(1,545	)		(1,475	)		1,788
(Provision) benefit for UTPs included in income from discontinued operations		(354	)		(620	)		(2,117	)		893
(Provision) benefit for UTPs on income from continuing operations	$	(761	)	$	(925	)	$	642		$	895

As of June 30, 2012, we had unrecognized tax benefits relating to UTPs of $113 million. Pursuant to the Purchase Agreement for the sale of SS/L to MDA, we will, in general, indemnify SS/L for taxes related to periods prior to the closing of the transaction. The Company recognizes potential accrued interest and penalties related to UTPs in income tax expense on a quarterly basis. As of June 30, 2012, we have accrued approximately $31.8 million and $24.3 million for the payment of potential tax-related interest and penalties, respectively.

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2007. Earlier years related to certain foreign jurisdictions remain subject to examination. Various state and foreign income tax returns are currently under examination. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. During the next twelve months, the statute of limitations for assessment of additional tax will expire with regard to UTPs related to Old Loral, as well as several of our federal and state income tax returns filed for 2007 and 2008, potentially resulting in a $60.9 million reduction to our unrecognized tax benefits. This reduction would provide an $88 million benefit to our income tax provision on income from continuing operations, including the reversal of applicable interest and penalties previously accrued.

The following summarizes the changes to our liabilities for UTPs included in long-term liabilities in the condensed consolidated balance sheets (in thousands):

	Six Months Ended June 30,
	2012			2011
Liabilities for UTPs:
Opening balance — January 1	$	139,916		$	122,857
Current provision (benefit) for:
Unrecognized tax benefits		(115	)		2,722
Potential additional interest		3,094			2,803
Potential additional penalties		6			1,153
Statute expirations		(1,072	)		(942	)
Tax settlements		—			(3,257	)
Ending balance — June 30	$	141,829		$	125,336

As of June 30, 2012, if none of our positions are overturned by the taxing authorities, the Company’s future income tax provisions on income from continuing operations would be reduced by approximately $110 million. Other than as described above, there were no significant changes to our uncertain tax positions during the six months ended June 30, 2012 and 2011, and we do not anticipate any other significant changes to our unrecognized tax benefits during the next twelve months.