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, 2017

Income tax (expense) benefit consists of the following (amounts in thousands):



	Years Ended December 31,
	2017			2016		2015
Deferred tax (expense) benefit:
Federal taxes	$	41,531		(4,452	)	1,360
State taxes	(105		)	(753	)	487
	$	41,426		(5,205	)	1,847

Income tax benefit for the year ending December 31, 2017 was recognized primarily as a result of the enactment of the Tax Cuts & Jobs Act (“Tax Reform”) in December 2017. The primary provisions of Tax Reform affecting us are the reduction to the U.S. corporate income tax rate from 35% to 21% and temporary 100% bonus depreciation for certain assets. The change in the tax law required us to remeasure existing net deferred tax liabilities using the lower rate in the year of enactment resulting in an income tax benefit of $41.6 million to reflect these changes in the year ending December 31, 2017. There were no specific impacts of Tax Reform that could not be reasonably estimated which we accounted for under prior law.

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,
	2017			2016		2015
“Expected” statutory tax (expense) benefit	$	23,152		(374	)	9,699
Tax reform rate change	41,626			—		—
Nondeductible unrealized loss on derivative instrument with related party	(17,021		)	1,092		(3,906	)
Employee's excess tax benefit for stock based compensation	3,397			—		—
Nondeductible officer compensation	(3,074		)	(1,424	)	(1,906	)
Nondeductible transaction costs	(2,760		)	—		—
Nondeductible entertainment expenses	(1,141		)	(1,029	)	(1,059	)
Nondeductible original issue discount	(850		)	(773	)	(660	)
Nondeductible lobbying expenses	(345		)	(1,192	)	(442	)
State income taxes, net of federal (expense) benefit	(105		)	(753	)	487
Impact of non-controlling interest attributable to non-tax paying entity	—			—		220
Other, net	(1,453		)	(752	)	(586	)
	$	41,426		(5,205	)	1,847

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2017 and 2016 are summarized below (amounts in thousands):



	2017		2016
Deferred tax assets:
Net operating loss carryforwards	$	104,617	111,236
Deferred revenue for financial reporting purposes	44,853		59,993
Asset retirement obligations in excess of amounts recognized for tax purposes	13,328		16,808
Compensated absences accrued for financial reporting purposes	2,825		3,505
Share-based compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes	2,629		3,393
Accounts receivable, principally due to allowance for doubtful receivables	1,023		1,965
Workers compensation and self-insurance health reserves, principally due to accrual for financial reporting purposes	1,523		1,705
Alternative minimum tax credits	1,735		1,735
Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	1,370		1,687
Other	5,671		11,515
Total deferred tax assets	$	179,574	213,542
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	192,413	245,118
Intangible assets	77,455		106,061
Other	277		345
Total deferred tax liabilities	270,145		351,524
Net deferred tax liabilities	$	90,571	137,982

At December 31, 2017, we have tax net operating loss carryforwards of $371.2 million that will begin expiring in 2020 if not utilized. 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	$	1,530	1,505
2021	29,615		27,814
2022	14,081		13,850
2023	3,968		3,903
2024	722		710
2025	1,536		1,511
2026	663		652
2027	1,010		993
2028	39,879		39,226
2029	46,537		45,756
2031	104,101		102,639
2033	5,073		4,968
2034	38,561		37,312
2035	13,415		12,743
2036	282		268
2037	70,195		66,850
Total tax net operating loss carryforwards	$	371,168	360,700

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 2013 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, 2017, 2016 and 2015, and accordingly, we did not recognize any interest expense. Additionally, we recorded no penalties during the years ended December 31, 2017, 2016 and 2015.

We adopted ASU 2016-09 as of January 1, 2017 on a modified retrospective basis. As a result of this adoption, we have recorded a $7.1 million adjustment to Retained Earnings (Deficit) as of January 1, 2017. We recorded an excess tax benefit generated from stock based compensation during the year ended December 31, 2017 of $3.4 million. We did not record any excess tax benefit generated from stock based compensation during the years ended December 31, 2016 and 2015, since we were in a net operating loss carryforward position and the income tax deduction would not yet reduce income taxes payable.