Sprint - Nextel 2010 Annual Report Download - page 80

Deferred income taxes are recognized for the temporary differences between the carrying amounts of our assets and
liabilities for financial statement purposes and their tax bases. Deferred tax assets are also recorded for operating loss, capital
loss and tax credit carryforwards. The sources of the differences that give rise to the deferred income tax assets and liabilities as
of December 31, 2010 and 2009, along with the income tax effect of each, were as follows:
Deferred tax assets
Net operating loss carryforwards
Capital loss carryforwards
Accruals and other liabilities
Tax credit carryforwards
Pension and other postretirement benefits
Valuation allowance
Deferred tax liabilities
Property, plant and equipment
Intangibles
Investments
Other
Current deferred tax asset
Long-term deferred tax liability
December 31, 2010
Current
(in millions)
$ —
—
445
—
—
445
(210)
235
—
—
—
50
50
$ 185
Long-Term
$ 3,318
51
1,073
473
238
5,153
(2,355)
2,798
1,792
6,611
1,065
132
9,600
$ 6,802
December 31, 2009
Current
$ —
—
442
—
—
442
(88)
354
—
—
—
59
59
$ 295
Long-Term
$ 2,788
40
1,209
479
200
4,716
(924)
3,792
2,658
6,667
1,048
112
10,485
$ 6,693
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. 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 recent
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. As a result, the Company recognized an increase in the valuation allowance of $1.6 billion and
$301 million for the years ended December 31, 2010 and 2009, respectively, on deferred tax assets primarily related to federal
and state net operating loss carryforwards generated during the period. The increase in the carrying amount of Sprint's valuation
allowance for the year ended December 31, 2010 in excess of amounts recognized as a change in the valuation allowance in the
current period income tax expense is primarily associated with the tax effect of items reflected in other comprehensive income,
other accounts and the expiration of net operating loss and tax credit carryforwards. The increase in the carrying amount of
Sprint's valuation allowance for the year ended December 31, 2009 in excess of amounts recognized as a change in the
valuation allowance in the 2009 income tax benefit is primarily associated with the tax effect of our fourth quarter 2009
acquisitions of Virgin Mobile and iPCS and the expiration of net operating loss and tax credit carryforwards. The valuation
allowance related to deferred income tax assets decreased by $12 million in 2008. We do not expect to record significant tax
benefits on future net operating losses until our circumstances justify the recognition of such benefits.
We believe it is more likely than not that our deferred income tax assets, net of the valuation allowance, will be
realized based on current income tax laws and expectations of future taxable income stemming from the reversal of existing
deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing
jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some of these deferred
income tax assets.
Income tax expense of $166 million for the year ended December 31, 2010 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. The income tax expense related to the temporary difference on FCC licenses was partially
offset by state income tax benefits recorded on losses in certain states and state income tax benefits recorded for reduction in
our liability for unrecognized tax benefits.
Table of Contents SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-23