XM Radio 2012 Annual Report Download - page 124

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences can be carried forward under tax law. Management’s
evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including
historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable
income and tax planning strategies in making this assessment. The weight given to the potential effects of
positive and negative evidence is based on the extent to which it can be objectively verified.
For the year ended December 31, 2012, our deferred tax asset valuation allowance decreased by $3,350,905
in response to cumulative positive evidence in 2012 which outweighed the historical negative evidence from our
emergence from cumulative losses in recent years and updated assessments regarding that it was more likely than
not that our deferred tax assets will be realized. Realization of the net deferred tax assets is dependent on our
generation of sufficient future taxable income to obtain benefit from the reversal of temporary differences,
primarily related to gross net operating loss carryforwards of approximately $6,571,519. In addition to the gross
book net operating loss carryforwards, we have $599,153 of excess share-based compensation deductions that
will not be realized until we utilize $6,571,519 of net operating losses, resulting in an approximate gross
operating loss carryforward on our tax return of $7,170,672 or $2,493,239 tax effected. As of December 31,
2012, the deferred tax asset valuation allowance of $9,835 relates to deferred tax assets that are not likely to be
realized due to certain state net operating loss limitations. These net operating loss carryforwards expire on
various dates beginning in 2017 and ending in 2028.
There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing
U.S. federal net operating loss carryforwards. The state income tax provision is primarily related to taxable
income in certain states that have suspended the ability to use net operating loss carryforwards. The foreign
income tax provision is primarily related to foreign withholding taxes related to royalty income between us and
our Canadian affiliate.
As of December 31, 2012 and 2011, the gross liability for income taxes associated with uncertain state tax
positions was $1,432, respectively. If recognized, $1,432 of unrecognized tax benefits would affect the effective
tax rate. This liability is recorded in Other long-term liabilities. No penalties have been accrued for. We do not
currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2012 will
significantly increase or decrease during the twelve-month period ending December 31, 2013; however, various
events could cause our current expectations to change in the future. Should our position with respect to the
majority of these uncertain tax positions be upheld, the effect would be recorded in our consolidated statements
of comprehensive income as part of the income tax provision. Our policy is to recognize interest and penalties
accrued on uncertain tax positions as part of income tax expense. We have recorded interest expense of $55 and
$92 for the years ended December 31, 2012 and 2011, respectively, related to our unrecognized tax benefits
presented below.
Changes in our uncertain income tax positions, from January 1 through December 31 are presented below:
2012 2011
Balance, beginning of year ............................................ $1,432 $ 942
Additions for tax positions from prior years ............................... — 490
Balance, end of year ............................................... $1,432 $1,432
We have federal and certain state income tax audits pending. We do not expect the ultimate disposition of
these audits to have a material adverse affect on our financial position or results of operations.
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