Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax [Line Items]

Income Taxes

Note 11. Income Taxes

The differences that caused our effective income tax rates to vary from the 35% U.S. federal statutory rate for income taxes were as follows:

	Six Months Ended
	June 30,
	2013			2012
	(in millions)
Income tax benefit at the federal statutory rate	$	751		$	761
Effect of:
State income taxes, net of federal income tax effect	63			87
Change in valuation allowance	(886		)	(902		)
Other, net	(21		)	(9		)
Income tax expense	$	(93	)	$	(63	)
Effective income tax rate	(4.3		)%	(2.9		)%

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. However, our history of consecutive annual losses reduces our ability to rely on expectations of future income in evaluating the ability to realize our deferred tax assets. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. As a result, the Company recognized an increase in the valuation allowance of $886 million and $902 million for the six-month periods endedJune 30, 2013 and 2012, respectively, on deferred tax assets primarily related to federal and state net operating loss carryforwards generated during the periods. The valuation allowance was $6.6 billion and $5.7 billion as of June 30, 2013 and December 31, 2012, respectively. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits.

Income tax expense of $93 million and $63 million for the six-month periods endedJune 30, 2013 and 2012, respectively, is primarily attributable to taxable temporary differences from amortization of FCC licenses. FCC licenses are amortized over 15 years for income tax purposes but, because these licenses have an indefinite life, they are not amortized for financial statement reporting purposes. This difference results in net deferred income tax expense since the taxable temporary difference cannot be scheduled to reverse during the loss carryforward period. In addition, during the six-month period ended June 30, 2012, a $33 million tax benefit was recorded as a result of the successful resolution of various state income tax uncertainties.

As of June 30, 2013 and December 31, 2012, we maintained a liability related to unrecognized tax benefits of $182 million and $171 million, respectively. Cash paid for net income taxes was $15 million and $22 million during the six-month periods endedJune 30, 2013 and 2012, respectively.

Starburst II, Inc. [Member]

Income Tax [Line Items]

Income Taxes

NOTE 5.    INCOME TAXES

The effective tax rate of 33% for the six months ended June 30, 2013 differs from the U.S. federal statutory income tax rate of 35% primarily due to certain permanently non-deductible expenses incurred during the period.

Deferred tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and their tax bases that will result in future taxable or deductible amounts. For acquisition-related costs incurred prior to the SoftBank Merger that are not immediately deductible for tax purposes, management has elected to record deferred tax assets, and a related valuation allowance, as appropriate, at the time the expenses are recognized after considering the likelihood the SoftBank Merger will be consummated and the expected structure of the SoftBank Merger. Cash paid for income taxes was $4.3 million during the six-month period ended June 30, 2013.

Deferred income tax assets and liabilities are measured based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount management believes is more likely than not to be realized.