Time Magazine 2015 Annual Report Download - page 107

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
compensation awards; accordingly, deferred tax assets related to certain equity awards may currently be in excess of the tax
benefit ultimately received. The applicable accounting rules require that the deferred tax asset related to an equity-based
compensation award be reduced only at the time the award vests (in the case of an RSU or PSU), is exercised (in the case of a
stock option) or otherwise expires or is canceled. This reduction is recorded as an adjustment to Additional paid-in capital
(“APIC”), to the extent that the realization of excess tax deductions on prior equity-based compensation awards were
recorded directly to APIC. The cumulative amount of such excess tax deductions is referred to as the Company’s “APIC
Pool.” Any shortfall balance recognized in excess of the Company’s APIC Pool is charged to Income tax provision in the
Consolidated Statement of Operations. The Company’s APIC Pool was sufficient to absorb any shortfalls such that no
shortfalls were charged to the Income tax provision during the years ended December 31, 2015, 2014 and 2013.
Accounting for Uncertainty in Income Taxes
The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon
examination, based on the technical merits of the positions.
Changes in the Company’s uncertain income tax positions, excluding the related accrual for interest and penalties, from
January 1 through December 31 are set forth below (millions):
Year Ended December 31,
2015 2014 2013
Beginning balance ........................................... $ 1,327 $ 2,169 $ 2,203
Additions for prior year tax positions ............................ 61 87 124
Additions for current year tax positions .......................... 62 69 76
Reductions for prior year tax positions ........................... (75) (968) (140)
Settlements ................................................ (40) (8) (84)
Lapses in statute of limitations ................................. (5) (22) (10)
Ending balance ............................................. $ 1,330 $ 1,327 $ 2,169
Should the Company’s position with respect to these uncertain tax positions be upheld, the significant majority of the
effect would be recorded in the Consolidated Statement of Operations as part of the Income tax provision.
During the year ended December 31, 2015, the Company recorded an increase to interest reserves in the Consolidated
Statement of Operations of approximately $55 million and made interest payments in connection with settlements reached
during 2015 of approximately $19 million. During the year ended December 31, 2014, the Company recorded a decrease to
interest reserves in the Consolidated Statement of Operations of approximately $62 million and made interest payments in
connection with settlements reached during 2014 of approximately $12 million. The amount accrued for interest and
penalties as of December 31, 2015 and 2014 was $382 million and $346 million, respectively. The Company’s policy is to
recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.
In the Company’s judgment, uncertainties related to certain tax matters are reasonably possible of being resolved
during the next twelve months. The effect of the resolutions of these matters, a portion of which could vary based on the final
terms and timing of actual settlements with taxing authorities, is estimated to be a reduction of recorded unrecognized tax
benefits ranging from $0 to $100 million, most of which would lower the Company’s effective tax rate. The Company does
not otherwise currently anticipate that its reserves related to uncertain income tax positions as of December 31, 2015 will
significantly increase or decrease during the twelve-month period ended December 31, 2016; however, various events could
cause the Company’s current expectations to change in the future.
During the year ended December 31, 2014, the Company recognized a tax benefit of $687 million primarily related to
the reversal of certain tax reserves, including related interest accruals, in connection with a Federal tax settlement on the
examination of the Company’s 2005–2007 tax returns. Certain matters involving the Company’s capital loss carryforward
93