Liberty Broadband Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2013

Total income tax expense of $11.0 million, $12.1 million and $7.4 million for the years ended December 31, 2013, 2012 and 2011, respectively, was allocated to income in each year. Income tax expense consists of the following (amounts in thousands):



	Years Ended December 31,
	2013		2012	2011
Deferred tax expense:
Federal taxes	$	9,267	10,318	6,264
State taxes	1,690		1,770	1,141
	$	10,957	12,088	7,405

Total income tax expense differed from the “expected” income tax expense determined by applying the statutory federal income tax rate of 35% as follows (amounts in thousands):



	Years Ended December 31,
	2013			2012	2011
“Expected” statutory tax expense	$	14,939		7,437	4,500
Impact of non-controlling interest attributable to non-tax paying entity	(7,977		)	—	—
State income taxes, net of federal expense	1,690			1,770	1,141
Income tax effect of nondeductible entertainment expenses	1,045			777	737
Income tax effect of nondeductible lobbying expenses	369			298	327
Income tax effect of nondeductible officer compensation	824			1,718	758
Other, net	67			88	(58	)
	$	10,957		12,088	7,405

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2013 and 2012 are summarized below (amounts in thousands):



	2013		2012
Current deferred tax assets, net of current deferred tax liability:
Net operating loss carryforwards	$	30,344	3,952
Compensated absences, accrued for financial reporting purposes	2,956		2,605
Workers compensation and self-insurance health reserves, principally due to accrual for financial reporting purposes	1,688		1,357
Accounts receivable, principally due to allowance for doubtful receivables	1,154		1,319
Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	104		32
Deferred revenue for financial reporting purposes	2,673		2,734
Other	834		898
Total current deferred tax assets	$	39,753	12,897
Long-term deferred tax assets:
Net operating loss carryforwards	$	90,589	116,034
Deferred revenue for financial reporting purposes	35,506		36,316
Alternative minimum tax credits	1,895		1,895
Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	2,556		2,543
Asset retirement obligations in excess of amounts recognized for tax purposes	4,930		6,680
Share-based compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes	1,860		1,675
Other	4,335		3,353
Total long-term deferred tax assets	141,671		168,496
Long-term deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	212,719		233,530
Intangible assets	49,761		58,627
Flow-through entity deferred tax items	40,667		—
Total long-term deferred tax liabilities	303,147		292,157
Net long-term deferred tax liabilities	$	161,476	123,661

At December 31, 2013, we have tax net operating loss carryforwards of $294.5 million that will begin expiring in 2020 if not utilized, and alternative minimum tax credit carryforwards of $1.9 million available to offset regular income taxes payable in future years. Our utilization of remaining acquired net operating loss carryforwards is subject to annual limitations pursuant to Internal Revenue Code section 382 which could reduce or defer the utilization of these losses.

Our tax net operating loss carryforwards are summarized below by year of expiration (amounts in thousands):



Years ending December 31,	Federal		State
2020	$	39,969	38,954
2021	29,614		28,987
2022	14,081		13,788
2023	3,968		3,903
2024	722		—
2025	737		—
2026	150		—
2027	1,010		—
2028	39,879		39,715
2029	48,370		47,558
2031	110,933		109,376
2033	5,031		4,927
Total tax net operating loss carryforwards	$	294,464	287,208

Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through taxable income earned in carryback years, future reversals of existing taxable temporary differences, and future taxable income exclusive of reversing temporary differences and carryforwards. The amount of deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced.

We file federal income tax returns in the U.S. and in various state jurisdictions. We are not subject to U.S. or state tax examinations by tax authorities for years 2009 and earlier except that certain U.S. federal income tax returns for years after 1998 are not closed by relevant statutes of limitations due to unused net operating losses reported on those income tax returns.

We recognize accrued interest on unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. We did not have any unrecognized tax benefits as of December 31, 2013, 2012 and 2011, and accordingly, we did not recognize any interest expense. Additionally, we recorded no penalties during the years ended December 31, 2013, 2012 and 2011.

We did not record any excess tax benefit generated from stock options exercised during the years ended December 31, 2013, 2012 and 2011, since we are in a net operating loss carryforward position and the income tax deduction will not yet reduce income taxes payable. The cumulative excess tax benefits generated for stock options exercised that have not been recognized is $3.4 million at December 31, 2013.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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