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, 2016

Total income tax (expense) benefit of $(5.2) million, $1.8 million and $(10.0) million for the years ended December 31, 2016, 2015 and 2014, respectively, was allocated to income (loss) in each year. Income tax (expense) benefit consists of the following (amounts in thousands):



	Years Ended December 31,
	2016			2015	2014
Deferred tax (expense) benefit:
Federal taxes	$	(4,452	)	1,360	(9,081	)
State taxes	(753		)	487	(948	)
	$	(5,205	)	1,847	(10,029	)

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,
	2016			2015			2014
“Expected” statutory tax (expense) benefit	$	(374	)	9,699			(24,246		)
Nondeductible officer compensation	(1,424		)	(1,906		)	(1,351		)
Nondeductible lobbying expenses	(1,192		)	(442		)	(425		)
Nondeductible entertainment expenses	(1,029		)	(1,059		)	(1,125		)
State income taxes, net of federal (expense) benefit	(753		)	487			(948		)
Nondeductible unrealized loss on derivative instrument with related party	1,092			(3,906		)	—
Nondeductible original issue discount	(773		)	(660		)	—
Impact of non-controlling interest attributable to non-tax paying entity	—			220			18,255
Other, net	(752		)	(586		)	(189		)
	$	(5,205	)	$	1,847		$	(10,029	)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2016 and 2015 are summarized below (amounts in thousands):



	2016		2015
Deferred tax assets:
Net operating loss carryforwards	$	111,236	139,238
Deferred revenue for financial reporting purposes	59,993		41,151
Asset retirement obligations in excess of amounts recognized for tax purposes	16,808		14,338
Compensated absences accrued for financial reporting purposes	3,505		3,339
Share-based compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes	3,393		2,773
Accounts receivable, principally due to allowance for doubtful receivables	1,965		1,912
Workers compensation and self-insurance health reserves, principally due to accrual for financial reporting purposes	1,705		1,795
Alternative minimum tax credits	1,735		1,735
Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	1,687		1,603
Other	11,515		13,144
Total deferred tax assets	$	213,542	221,028
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	245,118	246,172
Intangible assets	106,061		79,255
Other	345		1,746
Total deferred tax liabilities	351,524		327,173
Net deferred tax liabilities	$	137,982	106,145

At December 31, 2016, we have tax net operating loss carryforwards of $272.1 million that will begin expiring in 2022 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
2022	10,236		11,371
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	$	272,054	266,006

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 2012 and earlier except that certain U.S. federal income tax returns for years after 2001 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, 2016, 2015 and 2014, and accordingly, we did not recognize any interest expense. Additionally, we recorded no penalties during the years ended December 31, 2016, 2015 and 2014.

We did not record any excess tax benefit generated from stock options exercised during the years ended December 31, 2016, 2015 and 2014, 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 $7.4 million at December 31, 2016.