Virgin Media 2010 Annual Report Download - page 142

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14—Income Taxes (continued)
A valuation allowance is recorded to reduce the deferred tax assets to an amount that is more likely than not
to be realized. To the extent that a portion of the valuation allowance is reduced, the benefit will be recognized as
a reduction of income tax expense.
At December 31, 2010, we had net operating loss carryforwards for U.S. federal income tax purposes of
£330 million that expire between 2020 and 2030. We have U.K. net operating loss carryforwards of £2.6 billion
that have no expiration date. Pursuant to U.K. law, these losses are only available to offset income of the legal
entity that generated the loss. A portion of the U.K. net operating loss carryforwards relates to dual resident
companies, of which the U.S. net operating loss carryforward amount is £1.5 billion and expires between 2011
and 2028. Section 382 may severely limit our ability to utilize these losses for U.S. purposes. We also have U.K.
capital loss carryforwards of £12.1 billion that have no expiration date. However, we do not expect to realize any
significant benefit from these capital losses, which can only be used to the extent we generate U.K. taxable
capital gain income in the future from assets held by subsidiaries owned by the group prior to the merger with
Telewest.
At December 31, 2010, we had fixed assets on which future U.K. tax deductions can be claimed of £13.0
billion. The maximum amount that can be claimed in any one year is 20% of the remaining balance, after
additions, disposals and prior claims. This rate is expected to fall to 18% with effect from 1 April 2012.
The reconciliation of income taxes computed at U.S. federal statutory rates to income tax benefit
attributable to continuing operations is as follows (in millions):
Year ended December 31,
2010 2009 2008
Benefit at federal statutory rate (35%) ..................................... £102.7 £123.5 £ 292.0
Add:
Permanent book-tax differences ...................................... (36.6) (24.6) (139.0)
Foreign losses with no benefit ....................................... (38.6) (78.1) (94.3)
U.S. losses with no benefit .......................................... (2.9) 2.0 —
Difference between U.S. and foreign tax rates ........................... (17.9) (22.1) (55.2)
State and local tax rate ............................................. 0.3 (0.1) —
Reduction in valuation allowance on U.S. NOLs ......................... 79.8 — —
Foreign tax benefit from discontinued operations and OCI ................. 42.2 — 3.4
Other ........................................................... (4.9) 1.9 (0.1)
Benefit for income taxes ................................................ £124.1 £ 2.5 £ 6.8
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in millions):
2010 2009 2008
Balance, January 1 .................................... £10.0 £ 20.4 £15.0
Additions based on tax positions related to the current
year .......................................... — — —
Additions for tax provisions of prior years .............. 0.3 1.6 5.4
Reductions for tax provisions of prior years ............. (0.4) (0.8) —
Reductions for lapse of applicable statute of limitation .... — (11.2) —
Settlements ...................................... — — —
Balance, December 31 ................................. £ 9.9 £10.0 £20.4
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