Income Taxes (Notes)

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax (Provision) Benefit

Our income tax (provision) benefit consisted of

	Year Ended December 31,
(in millions)	2011			2010			2009
Current tax (provision) benefit	$	83		$	(7	)	15
Deferred tax (provision) benefit	(349		)	(265		)	850
Decrease (increase) in valuation allowance	351			257			(521		)
Income tax (provision) benefit	$	85		$	(15	)	$	344

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:

	Year Ended December 31,
	2011		2010		2009
U.S. federal statutory income tax rate	35.0	%	35.0	%	(35.0	)%
State taxes	3.4		2.3		(1.8	)
(Decrease) increase in valuation allowance	(45.7	)	(42.3	)	32.9
Release of uncertain tax position reserve	(9.0	)	—		—
Income Tax Allocation(1)	—		—		(20.2	)
Other, net	5.3		7.6		2.4
Effective income tax rate	(11.0	)%	2.6	%	(21.7	)%

⁽¹⁾  We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations (the “Income Tax Allocation”). For the year ended December 31, 2009, as a result of the Income Tax Allocation, we recorded a non-cash income tax benefit of $321 million on the loss from continuing operations, with an offsetting non-cash income tax expense of $321 million in other comprehensive income.

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The following table shows significant components of our deferred tax assets and liabilities:

	December 31,
(in millions)	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	6,647		$	6,472
Pension, postretirement and other benefits	5,703			4,527
AMT credit carryforward	402			424
Deferred revenue	2,297			2,202
Rent expense	284			280
Reorganization items, net	395			674
Other	564			495
Valuation allowance	(10,705		)	(9,632		)
Total deferred tax assets	$	5,587		$	5,442
Deferred tax liabilities:
Depreciation	$	5,093		$	4,837
Debt valuation	206			330
Intangible assets	1,755			1,731
Fuel hedge derivatives	32			73
Other	68			40
Total deferred tax liabilities	$	7,154		$	7,011

The following table shows the current and noncurrent deferred tax assets (liabilities):

	December 31,
(in millions)	2011			2010
Current deferred tax assets, net	$	461		$	355
Noncurrent deferred tax liabilities, net	(2,028		)	(1,924		)
Total deferred tax liabilities, net	$	(1,567	)	$	(1,569	)

The current and noncurrent components of our deferred tax balances are generally based on the balance sheet classification of the asset or liability creating the temporary difference. If the deferred tax asset or liability is not based on a component of our balance sheet, such as our net operating loss (“NOL”) carryforwards, the classification is presented based on the expected reversal date of the temporary difference. Our valuation allowance has been allocated between current or noncurrent based on the percentages of current and noncurrent deferred tax assets to total deferred tax assets.

At December 31, 2011, we had (1) $402 million of federal alternative minimum tax (“AMT”) credit carryforwards, which do not expire and (2) $16.8 billion of federal pretax NOL carryforwards, substantially all of which will not begin to expire until 2022.

Uncertain Tax Positions

The following table shows the amount of and changes to unrecognized tax benefits on our Consolidated Balance Sheets:

(in millions)	2011			2010			2009
Unrecognized tax benefits at beginning of period	$	89		$	66		$	29
Gross increases-tax positions in prior period	1			—			1
Gross decreases-tax positions in prior period	(3		)	(3		)	(1		)
Gross increases-tax positions in current period	1			29			40
Lapse of statute of limitations	(1		)	(2		)	—
Settlements	(65		)	(1		)	(3		)
Unrecognized tax benefits at end of period(1)	$	22		$	89		$	66

⁽¹⁾  Unrecognized tax benefits on our Consolidated Balance Sheets as of December 31, 2011, 2010 and 2009, include tax benefits of $5 million, $72 million, and $47 million, respectively, which will affect the effective tax rate when recognized.

We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. Interest and penalties are not material in any period presented.

We are currently under audit by the IRS for the 2010 and 2011 tax years.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets and establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our deferred tax liabilities, the overall business environment, our historical financial results, our industry's historically cyclical financial results and potential current and future tax planning strategies. We cannot presently determine when we will be able to generate sufficient taxable income to realize our deferred tax assets. Accordingly, we have recorded a full valuation allowance against our net deferred tax assets. If we determine that it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets, we will reverse our valuation allowance (in full or in part), resulting in a significant income tax benefit in the period such a determination is made.

The following table shows the balance of our valuation allowance and the associated activity:

(in millions)	2011			2010			2009
Valuation allowance at beginning of period	$	9,632		$	9,897		$	9,830
Income tax (provision) benefit	(351		)	(257		)	521
Other comprehensive income tax benefit (provision)	1,241			6			(308		)
Other	183			(14		)	(146		)
Valuation allowance at end of period(1)	$	10,705		$	9,632		$	9,897

⁽¹⁾  At December 31, 2011, 2010 and 2009, $2.5 billion, $1.2 billion and $1.2 billion of these balances were recorded in accumulated other comprehensive loss on our Consolidated Balance Sheets, respectively.