Time Warner Cable 2012 Annual Report Download - page 122

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):
2012 2011 2010
Balance at beginning of year ..........................................$ 50 $ 51 $ 56
Additions for prior year tax positions .................................... 17 3 2
Additions for current year tax positions .................................. 21 8 13
Reductions for prior year tax positions ................................... — (1) (2)
Lapses in statute of limitations ......................................... (3) (5) (11)
Settlements and reversals of timing differences ............................ (12) (6) (7)
Balance at end of year ................................................
$ 73 $ 50 $ 51
If the Company were to recognize the benefits of these uncertain income tax positions, the income tax provision and
effective tax rate would be impacted by $50 million, $33 million and $29 million, including interest and penalties and net of
the federal and state benefit for income taxes, for the years ended December 31, 2012, 2011 and 2010, respectively. These
benefit amounts include interest and penalties of $15 million, $11 million and $11 million for the years ended December 31,
2012, 2011 and 2010, 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, 2012 and 2011 was $22 million and $16 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, 2012, 2011 and 2010 includes interest and
penalties, before the federal and state benefit for income taxes, of $6 million, $1 million and $2 million, respectively.
The Company has determined that it is reasonably possible that its existing reserve for uncertain income tax positions as
of December 31, 2012 could decrease by up to approximately $32 million during the twelve-month period ending
December 31, 2013 including (i) $13 million related to certain matters affecting the cable industry under discussion with the
Internal Revenue Service (“IRS”) and (ii) $19 million related to various ongoing audits and settlement discussions with the
IRS and various state and local jurisdictions.
If the Company were to recognize the benefits of these uncertain income tax positions upon a favorable resolution of
these matters, the income tax provision and effective tax rate could be impacted by up to approximately $19 million,
including interest and penalties and net of the federal and state benefit for income taxes. This benefit amount includes interest
and penalties of approximately $9 million, net of the federal and state benefit for income taxes. The Company otherwise does
not currently anticipate that its reserve for uncertain income tax positions as of December 31, 2012 will significantly increase
or decrease during the twelve-month period ended December 31, 2013; however, various events could cause the Company’s
current expectations to change in the future.
The IRS is currently examining the Company’s 2005 to 2007 income tax returns, which are periods prior to the
Separation. In July 2012, the IRS started the examination of the Company’s 2009 and 2010 income tax returns for periods
after the Separation. The Company does not anticipate that these examinations 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
2012, nor does the Company anticipate a material impact in the future.
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