Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

7. Income Taxes

Successor Company

Our quarterly income tax (provision) benefit for income taxes is measured using an estimated annual effective tax rate for the period, adjusted for discrete items that occurred within the periods presented. For the three and six months ended June 30, 2011, we recorded an income tax benefit of $163.7 million and $143.5 million, respectively, which represents an effective tax rate of 21.4% and 20.8%, respectively. The effective tax rate for the three and six months ended June 30, 2011 differs from the federal statutory rate of 35.0% primarily due to non-deductible goodwill impairment, changes in deferred tax liabilities related to the stock basis of subsidiaries, changes in recorded valuation allowances and decreases in the liability for unrecognized tax benefits.

The Company recorded a goodwill impairment charge of $801.1 million for the three and six months ended June 30, 2011, of which $457.2 million related to non-deductible goodwill. Impairment of non-deductible goodwill reduced the income tax benefit of the impairment by $174.1 million and reduced our effective tax rate by approximately 22.7% and 25.2% for the three and six months ended June 30, 2011, respectively.

Upon emergence from bankruptcy, the Company recorded deferred tax liabilities related to the excess of the financial statement carrying amount over the tax basis of investments in certain subsidiaries. The estimated annual effective tax rate for the current year includes an estimate of the change in these deferred tax liabilities for the year. The goodwill impairment charge reduced the financial statement carrying amount of investments in certain subsidiaries, which caused a reduction in these deferred tax liabilities. The resulting reduction in income tax expense for the three and six months ended June 30, 2011 relating to the change in these deferred tax liabilities was $72.5 million and $78.9 million, respectively, which increased the effective tax rate for the three and six months ended June 30, 2011 by approximately 9.5% and 11.4%, respectively.

The estimated annual effective tax rate for the current year includes an estimate of the valuation allowance expected to be necessary at the end of the year for originating deferred tax assets. The goodwill impairment charge gave rise to a deferred tax asset whose realization did not meet a more-likely-than-not threshold, requiring a valuation allowance. The resulting increase in income tax expense for the three and six months ended June 30, 2011 relating to the change in valuation allowance is $47.2 million and $46.6 million, respectively, which reduced the effective tax rate for the three and six months ended June 30, 2011 by approximately 6.2% and 6.8%, respectively.

During the three months ended June 30, 2011, the federal statute of limitations relating to a previously unrecognized tax position for revenue recognition closed. The Company has decreased its liability for unrecognized tax benefits associated with this federal and state uncertain tax position by $28.2 million and recorded a net tax benefit of $24.0 million for both the three and six months ended June 30, 2011, respectively, which increased the effective tax rate for the three and six months ended June 30, 2011 by approximately 3.1% and 3.5%, respectively.

For the three and five months ended June 30, 2010, we recorded an income tax benefit of $157.0 million and $558.6 million, respectively, which represents an effective tax rate of 16.9% and 52.1%, respectively. As a result of the goodwill and non-goodwill intangible asset impairment charges during the three and five months ended June 30, 2010, we recognized a non-deductible adjustment to our effective tax rate of $201.8 million for the three and five months ended June 30, 2010.

Internal Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of net operating losses and other corporate tax attributes as ownership changes occur. Under Section 382, potential limitations are triggered when there has been an ownership change, which is generally defined as a greater than 50% change in stock ownership (by value) over a three-year prescribed testing period. Such change in ownership will restrict the Company’s ability to use certain net operating losses and other corporate tax attributes in the future. However, the ownership change does not constitute a change in control under any of the Company’s debt agreements or other contracts. The Company experienced an ownership change in March 2009.

Based upon the closing of the SEC filing period for Schedules 13-G and review of these schedules filed through February 15, 2010, the Company determined that, more likely than not, a certain “check-the-box” election was effective prior to the date of the 2009 ownership change under Section 382. As a result, the Company recorded a tax benefit for the reversal of a liability for unrecognized tax benefit of $351.9 million in the condensed consolidated statement of operations for the five months ended June 30, 2010, which was the primary driver of our effective tax rate for the period.

Predecessor Company

For the one month ended January 31, 2010, the Predecessor Company recorded an income tax provision of $(917.5) million which represents an effective tax rate of 11.7%.