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, 2015

Total income tax (expense) benefit of $1.8 million, $(10.0) million and $(11.0) million for the years ended December 31, 2015, 2014 and 2013, respectively, was allocated to income (loss) in each year. Income tax (expense) benefit consists of the following (amounts in thousands):



	Years Ended December 31,
	2015		2014		2013
Deferred tax (expense) benefit:
Federal taxes	$	1,360	(9,081	)	(9,267	)
State taxes	487		(948	)	(1,690	)
	$	1,847	(10,029	)	(10,957	)

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



	Years Ended December 31,
	2015			2014		2013
“Expected” statutory tax (expense) benefit	$	9,699		(24,246	)	(14,939	)
Nondeductible unrealized loss on derivative instrument with related party	(4,566		)	—		—
Nondeductible officer compensation	(1,906		)	(1,351	)	(824	)
Nondeductible entertainment expenses	(1,059		)	(1,125	)	(1,045	)
Nondeductible lobbying expenses	(442		)	(425	)	(369	)
State income taxes, net of federal (expense) benefit	487			(948	)	(1,690	)
Impact of non-controlling interest attributable to non-tax paying entity	220			18,255		7,977
Other, net	(586		)	(189	)	(67	)
	$	1,847		(10,029	)	(10,957	)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2015 and 2014 are summarized below (amounts in thousands):



	2015		2014
Deferred tax assets:
Net operating loss carryforwards	$	139,238	131,938
Deferred revenue for financial reporting purposes	41,151		36,077
Asset retirement obligations in excess of amounts recognized for tax purposes	14,338		6,660
Compensated absences accrued for financial reporting purposes	3,339		3,117
Share-based compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes	2,773		1,458
Accounts receivable, principally due to allowance for doubtful receivables	1,912		2,585
Workers compensation and self-insurance health reserves, principally due to accrual for financial reporting purposes	1,795		2,043
Alternative minimum tax credits	1,735		1,735
Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	1,603		1,374
Other	13,144		5,866
Total deferred tax assets	$	221,028	192,853
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	246,172	231,109
Intangible assets	79,255		48,768
Flow-through entity deferred tax items	—		44,728
Other	1,746		—
Total deferred tax liabilities	327,173		324,605
Net deferred tax liabilities	$	106,145	131,752

At December 31, 2015, we have tax net operating loss carryforwards of $340.5 million that will begin expiring in 2020 if not utilized, and alternative minimum tax credit carryforwards of $1.7 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	$	34,958	34,301
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
2034	39,133		37,866
2035	11,885		11,290
Total tax net operating loss carryforwards	$	340,471	331,711

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 2011 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, 2015, 2014 and 2013, and accordingly, we did not recognize any interest expense. Additionally, we recorded no penalties during the years ended December 31, 2015, 2014 and 2013.

We did not record any excess tax benefit generated from stock options exercised during the years ended December 31, 2015, 2014 and 2013, 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, 2015.