Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

13.       INCOME TAXES

The Company has filed, for prior taxable years through its taxable year ended December 31, 2011, a consolidated U.S. federal tax return, which includes all of its wholly owned domestic subsidiaries. For its taxable year commencing January 1, 2012, the Company intends to file as a REIT, and its domestic TRSs intend to file as C corporations. The Company also files tax returns in various states and countries. The Company's state tax returns reflect different combinations of the Company's subsidiaries and are dependent on the connection each subsidiary has with a particular state. The following information pertains to the Company's income taxes on a consolidated basis.

The income tax provision from continuing operations was comprised of the following for the years ended December 31, (in thousands):

		2012		2011		2010
Current:
	Federal	$	(18,170)	$	(14,069)	$	-
	State		(6,321)		(19,346)		(6,090)
	Foreign		(53,513)		(34,813)		11,928
Deferred:
	Federal		(13,094)		(81,685)		(191,393)
	State		(666)		(12,001)		(14,446)
	Foreign		(15,540)		36,834		17,512
Income tax provision		$	(107,304)	$	(125,080)	$	(182,489)

The income tax provision for the year ended December 31, 2011 is net of the deferred tax benefit due to the REIT Conversion of approximately $121million.

The domestic and foreign components of income from continuing operations before income taxes and income on equity method investments were as follows for the years ended December 31, (in thousands):

	2012		2011		2010
United States	$	787,960	$	608,936	$	536,188
Foreign		(86,666)		(102,041)		19,837
Total	$	701,294	$	506,895	$	556,025

For the year ended December 31, 2011, the Company recorded an income tax expense of $125.1 million, net of a benefit due to the adjustment of approximately $121 million in deferred tax liabilities (net of deferred tax assets) the values of which were reduced as a result of its REIT Conversion. A reconciliation between the U.S. statutory rate and the effective rate from continuing operations was as follows for the years ended December 31:

		2012		2011		2010
	Statutory tax rate	35	%	35	%	35	%
	Tax adjustment related to REIT (1)	(35)		-		-
	State taxes, net of federal benefit	1		6		3
	Non-deductible stock compensation	-		-		1
	Foreign taxes	4		3		-
	Foreign withholding taxes	4		2		-
	Changes in uncertain tax positions	(1)		1		(2)
	Foreign currency losses	-		1		-
	Reorganization of financing entity	-		-		(6)
	Deferred tax adjustment due to REIT Conversion	-		(24)		-
	Change in valuation allowance	8		-		-
	Other	(1)		1		2
	Effective tax rate	15	%	25	%	33	%
(1)	Includes 18% from dividend paid deductions.

The components of the net deferred tax asset and related valuation allowance are as follows as of December 31, (in thousands):

		2012		2011
Current assets:
Allowances, accruals and other items not currently deductible		$	31,561	$	17,673
Net operating loss carryforwards			-		16,279
Current deferred liabilities			(2,509)		(17,345)
Subtotal			29,052		16,607
Valuation allowance			(3,298)		(517)
	Net short-term deferred tax assets	$	25,754	$	16,090
Non-current items:
Assets:
	Net operating loss carryforwards		127,914		48,962
	Accrued asset retirement obligations		70,797		50,131
	Stock-based compensation		25,258		26,993
	Unearned revenue		21,912		20,896
	Items not currently deductible and other		55,924		27,396
	Depreciation and amortization		-		31,264
Liabilities:
	Depreciation and amortization		(42,896)		-
	Deferred rent		(18,640)		(9,987)
	Other		(4,566)		(2,031)
Subtotal			235,703		193,624
Valuation allowance			(92,260)		(5,321)
	Net long-term deferred tax assets	$	143,443	$	188,303

The valuation allowance increased from $5.8 million as of December 31, 2011 to $95.6 million as of December 31, 2012.

At December 31, 2012, the Company has provided a valuation allowance of approximately $95.6 million which primarily relates to foreign items. During 2012, the Company increased amounts recorded as valuation allowances due to the uncertainty as to the timing and the Company's ability to recover net deferred tax assets in certain foreign operations in the foreseeable future. The amount of deferred tax assets considered realizable, however, could be adjusted if objective evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

The recoverability of the Company's net deferred tax asset has been assessed utilizing projections based on its current operations. Accordingly, the recoverability of the net deferred tax asset is not dependent on material asset sales or other non-routine transactions. Based on its current outlook of future taxable income during the carryforward period, management believes that the net deferred tax asset will be realized.

The Company's deferred tax assets as of December 31, 2012 and 2011 in the table above do not include $6.9million and $3.0 million, respectively, of excess tax benefits from the exercises of employee stock options that are a component of net operating losses as these benefits can only be recognized when the related tax deduction reduces income taxes payable. If these benefits had been fully recognized in 2012, total equity as of December 31, 2012 would have increased by $6.9 million.

The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. The Company has not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $101 million of undistributed earnings of foreign subsidiaries indefinitely invested outside of the United States. Should the Company decide to repatriate the foreign earnings, it may have to adjust the income tax provision in the period it determined that the earnings will no longer be indefinitely invested outside of the United States.

At December 31, 2012, the Company had net federal, state, and foreign operating loss carryforwards available to reduce future taxable income, including losses related to employee stock options of approximately $0.3 billion. If not utilized, the Company's net operating loss carryforwards expire as follows (in thousands):

Years ended December 31,	Federal		State		Foreign
2013 to 2017	$	-	$	118,719	$	791
2018 to 2022		-		468,951		3,661
2023 to 2027		732,561		445,206		-
2028 to 2032		190,332		87,043		-
Indefinite carryforward		-		-		407,168
Total	$	922,893	$	1,119,919	$	411,620

In addition, the Company has Mexican tax credits of $2.9 million which if not utilized would expire in 2017.

As of December 31, 2012 and 2011, the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $30.6 million and $34.5 million, respectively. The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, or if the applicable statute of limitations lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $1.3 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows for the years ended December 31, (in thousands):

	2012		2011		2010
Balance at January 1	$	38,886	$	79,012	$	87,975
Additions based on tax positions related to the current year		1,037		1,801		10,101
Additions for tax positions of prior years		-		16,520		11,109
Reductions for tax positions of prior years		(221)		(54,430)		(30,855)
Foreign currency		(439)		(3,550)		735
Reduction as a result of the lapse of statute of limitations and effective settlements		(4,926)		(467)		(53)
Balance at December 31,	$	34,337	$	38,886	$	79,012

During the years ended December 31, 2012, 2011 and 2010, the statute of limitations on certain unrecognized tax benefits lapsed and certain positions were effectively settled, which resulted in a decrease of $4.9 million, $0.5 millionand less than $0.1 million, respectively, in the liability for uncertain tax benefits, all of which reduced the income tax provision.

During the year ended December 31, 2012, the Company recorded penalties and tax-related interest benefit to the tax provision of $2.9 million. During the years ended December 31,2011 and 2010, the Company recorded penalties and tax-related interest expense to the tax provision of $9.1 million and $2.3 million. As of December 31, 2012 and 2011, the total unrecognized tax benefits included in other non-current liabilities in the consolidated balance sheets were $34.3 million and $36.6 million, respectively. As of December 31, 2012 and 2011, the total amount of accrued income tax-related interest and penalties included in other non-current liabilities in the consolidated balance sheets were $28.7million and $31.5million, respectively.

The Company has filed for prior taxable years, and for its taxable year ended December 31, 2012 will file, numerous consolidated and separate income tax returns, including U.S.federal and state tax returns and foreign tax returns. The Company is subject to examination in the U.S.and various state and foreign jurisdictions for certain tax years. As a result of the Company's ability to carryforward federal, state and foreign net operating losses, the applicable tax years generally remain open to examination several years after the applicable loss carryforwards have been used or expired.

The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. The Company believes that adequate provisions have been made for income taxes for all periods through December 31, 2012.