Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Components of income tax expense (benefit)

The following table summarizes the income tax benefit (provision) attributable to loss from continuing operations before income taxes for each of the three years ended December 31, 2012, 2011 and 2010:



	2012			2011			2010
	(dollars in millions)
Current:
United States federal	$	—		$	—		$	—
State	(2		)	—			(1		)
Foreign	(36		)	(8		)	—
	(38		)	(8		)	(1		)
Deferred, net of changes in valuation allowances:
United States federal	(3		)	(30		)	—
State	—			(1		)	—
Foreign	(7		)	(2		)	92
Income tax benefit (provision)	$	(48	)	$	(41	)	$	91

Schedule of income before income tax, domestic and foreign

The United States and foreign components of income (loss) from continuing operations before income taxes for each of the three years ended December 31, 2012, 2011 and 2010 are as follows:



	2012			2011			2010
	(dollars in millions)
United States	$	(434	)	$	(692	)	$	(542	)
Foreign	60			(94		)	(170		)
	$	(374	)	$	(786	)	$	(712	)

Schedule of effective income tax rate reconciliation

A reconciliation of the actual income tax benefit (provision) and the tax computed by applying the U.S. federal rate (35%) to the loss before income taxes for each of the three years ended December 31, 2012, 2011 and 2010 is shown in the following table:



	2012			2011			2010
	(dollars in millions)
Computed tax benefit at statutory rate	$	131		$	275		$	250
Effect of earnings in jurisdictions outside of US	25			(13		)	(13		)
Change in valuation allowance	(145		)	(213		)	(130		)
Permanent items	(48		)	(44		)	(16		)
Indefinite-lived assets	(3		)	(26		)	—
Other, net	(8		)	(20		)	—
Income tax benefit (provision)	$	(48	)	$	(41	)	$	91

Deferred tax assets and liabilities

The components of the net deferred tax assets (liabilities) as of December 31, 2012 and 2011 are as follows:



	2012			2011
	(dollars in millions)
Deferred Tax Assets:
Accrued payroll and related benefits	$	119		$	101
Deferred revenue	271			276
Unutilized tax net operating loss carry forwards	4,611			3,996
Fixed assets and intangible assets	134			157
Intercompany loss	148			164
Other	162			193
Total Deferred Tax Assets	5,445			4,887
Deferred Tax Liabilities:
Fixed assets and intangible assets	(702		)	(542		)
Deferred revenue	(87		)	(93		)
Other	(45		)	(51		)
Foreign branch income	(37		)	(40		)
Total Deferred Tax Liabilities	(871		)	(726		)
Net Deferred Tax Assets before valuation allowance	4,574			4,161
Valuation Allowance	(4,697		)	(4,252		)
Net Deferred Tax (Liability) after Valuation Allowance	$	(123	)	$	(91	)
Balance sheet classification of deferred taxes:
Net current deferred income tax asset	$	9		$	12
Net current deferred income tax liability	(3		)	(3		)
Net non-current deferred income tax asset	219			246
Net non-current deferred income tax liability	(348		)	(346		)
Net Deferred Tax (Liability) after Valuation Allowance	$	(123	)	$	(91	)

Operating loss carryforwards

As of December 31, 2012, the Company had net operating loss carry forwards of approximately $8.5 billion (net of IRC Section 382 limitation) for U.S. federal income tax purposes. These loss carry forwards expire in future years through 2032 and are subject to examination by the tax authorities until three years after the carry forwards are utilized. The U.S. federal tax loss carry forwards expire as follows (dollars in millions):




Expiring December 31,	Amount
2023	$	254
2024	1,302
2025	1,186
2026	1,029
2027	1,501
2028	445
2029	700
2030	703
2031	711
2032	$	695
	$	8,526

Uncertain tax benefits

A reconciliation of the beginning and ending balance of unrecognized tax benefits follows (dollars in millions):



	Amount
Balance as of January 1, 2010	$	5
Gross increases - tax position prior to 2010	1
Balance as of December 31, 2010	$	6
Gross increases - Global Crossing tax positions of prior years	11
Gross decreases - tax positions of prior years	(1		)
Gross decreases - settlement with taxing authorities	(1		)
Balance as of December 31, 2011	$	15
Gross increases - tax positions of prior years	4
Gross increases - tax positions during 2012	1
Gross decreases - lapse of statute of limitations	(1		)
Gross decreases - settlement with taxing authorities	(1		)
Balance as of December 31, 2012	$	18

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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