DIRECTV 2010 Annual Report Download - page 103

DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
The valuation allowance balances of $504 million at December 31, 2010 and approximately $125 million in 2010. It is not practicable to determine the amount
$711 million at December 31, 2009, are primarily attributable to unused foreign of the unrecognized deferred tax liability related to the investments in foreign
operating losses and unused capital losses, both of which are available for carry subsidiaries.
forward. For the year ended December 31, 2010, the decrease in the valuation A reconciliation of the beginning and ending balances of the total amounts of
allowance was primarily attributable to the reversal of a valuation allowance for a gross unrecognized tax benefits is as follows:
$200 million deferred tax asset for Brazilian net operating loss carryforwards. The
reversal of the valuation allowance was based on management’s evaluation that it is Unrecognized Tax
Benefits
more likely than not that Brazilian net operating loss carryforwards which have not
(Dollars in Millions)
been previously realized will be utilized as a result of recent profitability of the
Gross unrecognized tax benefits at January 1, 2008 ........ $291
Brazilian operations and its financial projections. $57 million of the valuation
Increases in tax positions for prior years .............. 75
allowance reversal was both reported as a reduction in the foreign income tax
Increases in tax positions for the current year ........... 26
expense and attributable to the noncontrolling interest in the Brazilian operations.
Statute expiration ............................. (38)
Additionally, $143 million of the valuation allowance reversal was completely offset
Settlements ................................. 9
by a reduction to future U.S. tax credits that were previously recorded upon our
acquisition of Sky Brazil. Gross unrecognized tax benefits at December 31, 2008 ...... 363
Increases in tax positions for prior years .............. 26
Although realization is not assured, we have concluded that it is more likely Increases in tax positions for the current year ........... 147
than not that our unreserved deferred tax assets will be realized in the ordinary Settlements ................................. (9)
course of operations based on available positive and negative evidence, including
scheduling of deferred tax liabilities and projected income from operating activities. Gross unrecognized tax benefits at December 31, 2009 ...... 527
The underlying assumptions we use in forecasting future taxable income require Decreases in tax positions for prior years .............. (200)
significant judgment and take into account our recent performance. Increases in tax positions for the current year ........... 35
Gross unrecognized tax benefits at December 31, 2010 ...... $362
As of December 31, 2010, we have $29 million of federal net operating loss
carryforward which expires between 2027 and 2028. The utilization of the federal As of December 31, 2010, our unrecognized tax benefits totaled $362 million,
net operating loss carryforward is subject to an annual limitation under Section 382 including $303 million of tax positions the recognition of which would affect the
of the Internal Revenue Code, however we believe that we will have sufficient annual effective income tax rate.
taxable income during the limitation period to utilize all of the carryforward. We
also have foreign tax credit carryovers of $75 million which expire between 2019 We recorded $21 million of interest and penalties accrued related to
and 2020, California research tax credits of $19 million which can be carried unrecognized tax benefits in ‘‘Income tax expense’’ in the Consolidated Statements
forward indefinitely, state net operating loss carryforwards of $99 million which of Operations during the year ended December 31, 2010, and we have accrued
expire between 2029 and 2030, and approximately $2.3 billion of foreign net $51 million in interest and penalties as part of our liability for unrecognized tax
operating losses that are primarily attributable to operations in Brazil with varying benefits as of December 31, 2010.
expiration dates. We file numerous consolidated and separate income tax returns in the U.S.
No income tax provision has been made for the portion of undistributed federal jurisdiction and in many state and foreign jurisdictions. For U.S. federal tax
earnings of foreign subsidiaries deemed permanently reinvested that amounted to purposes, the tax years 2007 through 2009 remain open to examination. The
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