Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

Note 5.     Income Taxes

For the periods presented, the Company's taxable income or loss was included in the consolidated federal and certain state and local income tax returns of Cablevision. The income tax expense or benefit is based on the taxable income of the Company on a separate tax return basis. Since the Company does not reimburse Cablevision for the tax benefit received by the Company for the utilization of Cablevision's net operating loss carry forwards ("NOLs"), the Company reflects the utilization of Cablevision's NOLs as a deemed capital contribution in the period of utilization. As such, a deemed capital contribution of $39,982 has been recorded for the six months ended June 30, 2011. The Company made certain state income tax payments in excess of the current liability of the Company computed on a separate tax return basis. Such payments have been reflected as a deemed capital distribution from the Company to Cablevision. Such distribution with regard to tax payments made amounted to $279 for the six months ended June 30, 2011.

The Company recorded income tax expense attributable to continuing operations of $19,812 and $42,948 for the three and six months ended June 30, 2011, respectively, representing an effective tax rate of 42% and 43%, respectively. The effective tax rate was higher than the federal statutory rate of 35% due primarily to state income tax expense of $2,487 and $5,290, tax expense of $107 and $492 resulting from an increase in the valuation allowance with regard to certain local income tax credit carry forwards, and tax expense of $546 and $2,069 related to uncertain tax positions, including accrued interest, for the three and six months ended June 30, 2011, respectively.

The Company recorded income tax expense attributable to continuing operations of $22,737 and $40,643 for the three and six months ended June 30, 2010, respectively, representing an effective tax rate of 43% in both periods. The effective tax rate was higher than the federal statutory rate of 35% due primarily to state income tax expense of $2,886 and $5,162, tax expense of $349 and $707 resulting from an increase in the valuation allowance with regard to certain local income tax credit carry forwards, and tax expense of $407 and $802 related to uncertain tax positions, including accrued interest, for the three and six months ended June 30, 2010, respectively.

At June 30, 2011, the Company had estimated federal NOLs of approximately $265,000, expiring on various dates from 2019 through 2026.

At June 30, 2011, the Company had foreign tax credit carry forwards of approximately $12,000, expiring on various dates from 2014 through 2021.

As a result of the Distribution, the following adjustments to the deferred tax assets and liabilities were recorded as a deemed capital distribution, net in the consolidated statement of stockholders' (deficiency) equity as of the Distribution date: (i) a decrease in the net deferred tax assets of $2,641 to reflect the lower stand-alone estimated applicable corporate tax rates, (ii) a decrease in the deferred tax asset for share-based awards of $7,292 to eliminate the portion of the deferred tax asset relating to share-based compensation expense attributable to Cablevision corporate employees that was allocated to the Company prior to the Distribution; and (iii) a decrease in the deferred tax asset of $1,314 to reflect that certain compensation awards are no longer anticipated to be realized as a tax deduction pursuant to Internal Revenue Code Section 162(m).

In January 2011, the Company settled a New York City Unincorporated Business Tax audit for the years 2003 through 2005 for $2,253, including accrued interest, which approximated the related uncertain tax position liability as of December 31, 2010. The City of New York is currently auditing the Company's Unincorporated Business Tax returns for the years 2006 through 2008.

The liability for uncertain tax positions, excluding accrued interest and associated deferred tax benefits, as of June 30, 2011 is $8,979. All of such unrecognized tax benefits, if recognized, would reduce the Company's income tax expense and effective tax rate. As of the Distribution date, liabilities for uncertain tax positions of $56,409, accrued interest of $1,284, and the associated deferred tax asset of $2,358 were eliminated and recorded as a deemed capital contribution, net in the consolidated statement of stockholders' (deficiency) equity as the liability for such uncertain tax positions became an obligation of Cablevision. Under the Company's Tax Disaffiliation Agreement with Cablevision, Cablevision is liable for all income taxes of the Company for periods prior to the Distribution except for New York City Unincorporated Business Tax.