Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

Note 5.                   Income Taxes

Income tax expense attributable to continuing operations was $22,440 and $65,388 for the three and nine months ended September 30, 2011, respectively, representing an effective tax rate of 36% and 40%, respectively. The effective tax rate differs from the federal statutory rate of 35% due primarily to state income tax expense of $1,272 and $6,562, tax benefit of $2,674 and $2,182 resulting from a decrease in the valuation allowance with regard to certain local income tax credit carry forwards, and tax expense of $839 and $2,908 related to uncertain tax positions, including accrued interest, for the three and nine months ended September 30, 2011, respectively.

Income tax expense attributable to continuing operations was $25,144 and $65,787 for the three and nine months ended September 30, 2010, respectively, representing an effective tax rate of 43% in both periods. The effective tax rate differs from the federal statutory rate of 35% due primarily to state income tax expense of $3,219 and $8,381, tax expense of $397 and $1,104 resulting from an increase in the valuation allowance with regard to certain local income tax credit carry forwards, and tax expense of $446 and $1,248 related to uncertain tax positions, including accrued interest, for the three and nine months ended September 30, 2010, respectively.

At September 30, 2011, the Company had estimated federal net operating loss carry forwards ("NOLs") of approximately $184,000, expiring on various dates from 2024 through 2026, and foreign tax credit carry forwards of approximately $12,000, expiring on various dates from 2014 through 2021.

At September 30, 2011, the liability for uncertain tax positions was $10,052, excluding the accrued interest liability of $2,021 and associated deferred tax assets of $4,267. All of such unrecognized tax benefits, if recognized, would reduce the Company's income tax expense and effective tax rate. The Company's policy is to include any interest on income taxes in income tax expense. As of the Distribution date, liabilities for uncertain tax positions of $56,409, accrued interest of $1,284, and the associated deferred tax assets 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.

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.

For periods prior to the Distribution, the Company's taxable income or loss was included in the consolidated federal and certain state and local income tax returns of Cablevision. The reductions in taxes payable realized by the Company through the utilization of Cablevision's NOLs during such periods are reflected as deemed capital contributions in the periods of utilization and are adjusted for true-ups in subsequent periods. Accordingly, a deemed capital contribution, net of $37,912 was recorded in the consolidated statement of stockholders' (deficiency) equity for the nine months ended September 30, 2011 to reflect the estimated NOLs of Cablevision used by the Company.

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 $2,392 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).