Income Taxes

The components of (loss)/income before income taxes and the related (benefit)/provision for U.S. and other income taxes were as follows:



(Loss)/Income before Income Taxes	Year Ended December 31,
(In millions)	2012			2011			2010
United States	$	(2,341.9	)	$	(1,271.5	)	$	(1,329.3	)
Outside of the U.S.	88.7			38.7			(12.6		)
	$	(2,253.2	)	$	(1,232.8	)	$	(1,341.9	)



Income Tax (Benefit)/Provision	Year Ended December 31,
(In millions)	2012			2011			2010
United States
Current
Federal	$	(72.0	)	$	(1.0	)	$	(215.1	)
State	5.6			(16.4		)	(7.7		)
Deferred
Federal	(726.7		)	(450.6		)	(221.9		)
State	(87.1		)	(70.1		)	(61.1		)
Outside of the U.S.
Current	13.0			8.7			10.4
Deferred	(3.3		)	(5.3		)	2.9
	$	(870.5	)	$	(534.7	)	$	(492.5	)

Total income taxes were allocated as follows:



Income Tax (Benefit)/Provision	Year Ended December 31,
(In millions)	2012			2011			2010
Loss from continuing operations, before income taxes	$	(870.5	)	$	(534.7	)	$	(492.5	)
Discontinued operations	50.1			27.8			23.8
Accumulated other comprehensive income/(loss)	10.9			70.9			(10.5		)
Retained earnings	—			6.0			—
Additional paid in capital	(2.1		)	11.6			—

The tax provision of $70.9 million allocated to accumulated other comprehensive income/(loss) in 2011 was primarily comprised of $117.3 million related to the reclassification of losses on derivative instruments from accumulated other comprehensive loss to interest expense, offset by tax benefits of $28.4 million related to the change in fair market value of derivatives and $19.2 million related to foreign currency translation adjustments. The tax impact for the components of accumulated other comprehensive income/(loss) in 2012 and 2010 were immaterial both individually and in the aggregate.

The differences between the statutory federal income tax rate and the effective tax rate expressed as a percentage of income/(loss) from continuing operations before taxes were as follows:



	Year Ended December 31,
	2012		2011		2010
Statutory tax rate	35.0	%	35.0	%	35.0	%
Increases/(decreases) in tax resulting from:
State taxes, net of federal tax benefit	4.4		9.2		5.8
Valuation allowance	(2.3	)	(6.6	)	(3.2	)
Foreign income taxes	—		2.8		1.2
Goodwill	(1.4	)	0.1		(2.2	)
Stock based compensation	(0.2	)	—		—
Officers’ life insurance/insurance proceeds	0.2		(0.3	)	0.1
Acquisition and integration costs	(0.2	)	—		—
Reserves for uncertain tax positions	3.1		(0.2	)	(0.1	)
Deferred tax liability adjustment	—		3.3		—
Other	—		0.1		0.1
Effective tax rate	38.6	%	43.4	%	36.7	%

The major components of the deferred tax assets and liabilities in our Consolidated Balance Sheets as of December 31, 2012 and 2011 were as follows:



(In millions)	2012		2011
Deferred tax assets
State net operating losses	$	180.3	$	155.9
Foreign net operating losses	37.8		35.4
Federal net operating loss	850.2		617.7
Compensation programs	120.6		112.0
Allowance for doubtful accounts	87.6		112.2
Self-insurance reserves	15.7		28.4
Accrued expenses	44.6		57.0
Federal tax credits	33.7		22.4
Federal indirect tax benefits of uncertain state tax positions	52.8		59.6
Outside basis difference in foreign subsidiaries	61.5		—
Other	20.6		57.2
Subtotal	1,505.4		1,257.8
Less: valuation allowance	330.0		210.7
Total deferred tax assets	1,175.4		1,047.1
Deferred tax liabilities
Depreciation and other property-related items	2,241.7		2,540.8
Deferred cancellation of debt income and other debt-related items	1,913.4		1,983.1
Management and other contracts	3.9		8.2
Intangibles	1,255.7		1,517.5
Prepaid expenses	28.3		28.1
Investments in non-consolidated affiliates	3.5		(3.0		)
Total deferred tax liabilities	5,446.5		6,074.7
Net deferred tax liability	$	4,271.1	$	5,027.6

Deferred tax assets and liabilities presented in our Consolidated Balance Sheets as of December 31, 2012 and 2011 were as follows:



(In millions)	2012		2011
Assets:
Deferred income taxes (current)	$	114.9	$	170.5
Liabilities:
Liabilities held for sale (non-current)	$	51.9	$	66.2
Deferred income taxes (non-current)	4,334.1		5,131.9
Net deferred tax liability	$	4,271.1	$	5,027.6

As a result of certain realization requirements of ASC Topic 718, Compensation - Stock Compensation ("ASC Topic 718"), the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2012, and December 31, 2011 that arose directly from tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $0.2 million if and when such deferred tax assets are ultimately realized. The Company uses ASC Topic 740, Income Taxes ("ASC Topic 740"), ordering when determining when excess tax benefits have been realized.

As of December 31, 2012 and 2011, the Company had federal net operating loss (“NOL”) carryforwards of $2,418.2 million and $2,022.3 million, respectively. This NOL will begin to expire in 2029. The federal NOL carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years. Due to application of ASC Topic 740, the federal NOL carryforwards reflected in the income tax returns, as filed, are larger than the NOLs for which a deferred tax asset is recognized for financial statement purposes. In addition, the Company had federal general business tax credits carryforwards of $21.4 million which will begin to expire in 2029. As of December 31, 2012, no valuation allowance has been established for the Company’s federal NOL carryforwards or general business tax credits carryforwards deferred tax assets because the Company has sufficient future tax liabilities arising within the carryforward periods. However, the Company will continue to assess the need for an allowance in future periods.

NOL carryforwards for the Company’s subsidiaries for state income taxes were $5,976.8 million and $5,878.8 million as of December 31, 2012 and 2011, respectively. The state NOL carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years. Due to application of ASC Topic 740, they are larger than the NOLs for which a deferred tax asset is recognized for financial statement purposes. We believe that it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $163.9 million on the deferred tax assets relating to these NOL carryforwards and other state deferred tax assets which will not more likely than not be realized. We anticipate that state NOLs in the amount of $12.8 million will expire in 2013. The remainder of the state NOLs will expire between 2014 and 2032.

NOL carryforwards of the Company’s foreign subsidiaries were $162.4 million and $139.8 million as of December 31, 2012 and 2011, respectively. The majority of these foreign NOLs have an indefinite carryforward period but are subject to a full valuation allowance as the Company believes these assets do not meet the “more likely than not” criteria for recognition under ASC Topic 740.

As of December 31, 2012 and 2011, the Company had foreign tax credit carryforwards of $12.3 million and $5.2 million, respectively. During 2012, the Company amended its 2006 federal tax return to deduct $12.4 million of the foreign tax credits which were projected to expire in 2015 and the Company amended its 2007 federal tax return to claim $6.4 million of foreign tax credits which were projected to expire in 2015. The remaining foreign tax credit carryforwards of $12.3 million is projected to expire unused in 2015 as the Company does not project to have sufficient future foreign source income in order to utilize these carryforwards. As such, the Company has provided a full valuation allowance against the foreign tax credit carryforward deferred tax asset.

We do not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. That excess is estimated to total $98.2 million at December 31, 2012. The additional deferred taxes, including foreign withholding taxes, that have not been provided is estimated at $31.4 million at December 31, 2012.

Included in the deferred tax assets is a deferred tax asset for the outside basis difference in the investments in foreign subsidiaries, which the Company believes is apparent will reverse in the foreseeable future. As the potential sale of this investment would generate a U.S. capital loss and the Company does not project generating any U.S. capital gains in the year of the sale or the related carryforward period, a full valuation allowance has been provided against this deferred tax asset.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:



(In millions)
Balance at January 1, 2010	$	362.0
Additions based on tax positions related to the current year	8.8
Additions for tax positions of prior years	224.2
Reductions for tax positions for prior years	(26.5		)
Settlements	—
Expiration of statutes	(1.1		)
Balance at December 31, 2010	$	567.4
Additions based on tax positions related to the current year	4.2
Additions for tax positions of prior years	2.0
Reductions for tax positions for prior years	(36.4		)
Settlements	—
Expiration of statutes	(4.9		)
Balance at December 31, 2011	$	532.3
Additions based on tax positions related to the current year	9.5
Additions for tax positions of prior years	3.3
Reductions for tax positions for prior years	(203.7		)
Settlements	(7.9		)
Expiration of statutes	(0.1		)
Balance at December 31, 2012	$	333.4

We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our Consolidated Balance Sheets, separate from any related income tax payable or deferred income taxes. In accordance with ASC 740, reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities. The reduction for tax positions from prior years in 2012 and the settlements in 2012 primarily relate to the settlements of the 2008 IRS exam appeal and the 2009 IRS examination. The Company recognized tax benefits through the reduction of tax expense of approximately $70.4 million related to those IRS settlements.

We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. We accrued approximately $19 million and $10 million during 2011 and 2010, respectively. We reduced our accrual by approximately $8.0 million during 2012 due primarily to the IRS exam settlements noted above. In total, we have accrued balances of approximately $73 million, $80 million, and $64 million for the payment of interest and penalties at December 31, 2012, 2011 and 2010, respectively. Included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010 are approximately $219 million, $287 million, and $312 million, respectively, of unrecognized tax benefits that, if recognized, would impact the effective tax rate.

We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the IRS and it is possible that the amount of the liability for unrecognized tax benefits could change during the next twelve months. We are also subject to exam by various state and foreign tax authorities. As of December 31, 2012, the tax years prior to 2010 are no longer subject to examination for U.S. tax purposes. As of December 31, 2012, the tax years prior to 2009 are no longer subject to examination for foreign and state income tax purposes as the statutes of limitations have lapsed. However, various subsidiaries could be examined by the New Jersey Division of Taxation for tax years beginning with 1999 due to our execution of New Jersey statute of limitation extensions.

The Company believes that it is reasonably possible that the unrecognized tax benefits will not increase or decrease significantly within the next twelve months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although the Company believes that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a favorable impact on earnings.