Time Warner Cable 2011 Annual Report Download - page 116

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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Uncertain Income Tax Positions
The Company recognizes income tax benefits for those income tax positions determined more likely than not to be
sustained upon examination, based on the technical merits of the positions. The reserve for uncertain income tax positions is
included in other liabilities in the consolidated balance sheet. Changes in the Company’s reserve for uncertain income tax
positions, excluding the related accrual for interest and penalties, from January 1 through December 31 are presented below
(in millions):
2011 2010 2009
Balance at beginning of year ............................................. $ 51 $ 56 $ 22
Additions for prior year tax positions ....................................... 3 2 32
Additions for current year tax positions ..................................... 2 6 3
Reductions for prior year tax positions ..................................... (1) — —
Lapses in statute of limitations ............................................ (5) (13) (1)
Balance at end of year .................................................. $ 50 $ 51 $ 56
If the Company were to recognize the benefits of these uncertain income tax positions, $33 million, $29 million and $28
million, including interest and penalties and net of the federal and state benefit for income taxes, would have impacted
income tax provision in the consolidated statement of operations and the effective tax rate for the years ended December 31,
2011, 2010 and 2009, respectively. These benefit amounts include interest and penalties of $11 million, $11 million and $12
million for the years ended December 31, 2011, 2010 and 2009, respectively, net of the federal and state benefit for income
taxes.
The impact of temporary differences and tax attributes are considered when calculating accruals for interest and
penalties associated with the reserve for uncertain income tax positions. The amount accrued for interest and penalties, before
the federal and state benefit for income taxes, as of December 31, 2011 and 2010 was $16 million and $15 million,
respectively. The Company recognizes interest and penalties accrued on uncertain income tax positions as part of the income
tax provision. The income tax provision for the years ended December 31, 2011, 2010 and 2009 includes interest and
penalties, before the federal and state benefit for income taxes, of $1 million, $2 million and $13 million, respectively.
The Company has determined that it is reasonably possible that its existing reserves related to uncertain income tax
positions as of December 31, 2011 will decrease by up to approximately $14 million during the twelve-month period ending
December 31, 2012 related to certain industry matters under discussion with the Internal Revenue Service (“IRS”). A
favorable resolution of these matters could result in an income tax benefit, including interest and penalties and net of the
federal and state benefit for income taxes, of up to approximately $5 million impacting the Company’s income tax provision
and effective tax rate. The Company otherwise does not currently anticipate that its reserves related to uncertain income tax
positions as of December 31, 2011 will significantly increase or decrease during the twelve-month period ended
December 31, 2012; however, various events could cause the Company’s current expectations to change in the future.
In August 2009, the IRS examination of the Company’s income tax returns for the period 2002 to 2004 was settled, with
the exception of an immaterial item subject to an ongoing examination. The resolution of these items did not have a material
impact on the Company’s consolidated financial position or results of operations. The IRS is currently examining the
Company’s 2005 to 2007 income tax returns. The Company does not anticipate that this examination will have a material
impact on the Company’s consolidated financial position or results of operations. In addition, the Company is also subject to
ongoing examinations of the Company’s tax returns by state and local tax authorities for various periods. Activity related to
these state and local examinations did not have a material impact on the Company’s consolidated financial position or results
of operations in 2011, nor does the Company anticipate a material impact in the future.
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