Sprint - Nextel 2011 Annual Report Download - page 92

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2011 and 2010, along with the income tax effect of each, were as follows:
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, in addition to the uncertainty concerning the forecasted income
beyond 2011, 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 $1.3 billion and $1.6 billion for the years ended December 31, 2011 and 2010, 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 years ended December 31, 2011 and
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. 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 remaining 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 $254 million and $166 million for the years ended December 31, 2011 and 2010, 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.
F-25
December 31, 2011 December 31, 2010
Current Long-Term Current Long-Term
(in millions)
Deferred tax assets
Net operating loss carryforwards $
—
$ 3,873 $
—
$ 3,318
Capital loss carryforwards
—
52
—
51
Accruals and other liabilities 461 1,094 445 1,073
Tax credit carryforwards
—
471
—
473
Pension and other postretirement benefits
—
324
—
238
461 5,814 445 5,153
Valuation allowance (284) (3,580) (210) (2,355)
177 2,234 235 2,798
Deferred tax liabilities
Property, plant and equipment
—
1,527
—
1,792
Intangibles
—
6,720
—
6,611
Investments
—
855
—
1,065
Other 47 118 50 132
47 9,220 50 9,600
Current deferred tax asset $130 $185
Long-term deferred tax liability $6,986 $6,802