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vested stock options. Expenses related to incremental value due to modification of warrants, RSUs and
unvested stock options were not material.
NOTE 10 — Income Taxes
The following table presents a summary of our U.S. and foreign income (loss) before income taxes and
minority interest:
2007 2006 2005
Year Ended December 31,
(In thousands)
U.S. ............................................ $500,624 $388,588 $424,733
Foreign .......................................... (3,640) (3,690) (10,862)
Total ............................................ $496,984 $384,898 $413,871
The following table presents a summary of our income tax expense components:
2007 2006 2005
Year Ended December 31,
(In thousands)
Current income tax expense:
Federal......................................... $182,960 $144,194 $108,180
State .......................................... 16,837 4,581 9,190
Foreign ........................................ 4,900 1,328 409
Current income tax expense ........................... 204,697 150,103 117,779
Deferred income tax (benefit) expense:
Federal......................................... (8,041) (8,803) 69,238
State .......................................... 7,062 (1,572) (2,654)
Foreign ........................................ (604) (277) 1,614
Deferred income tax (benefit) expense: ................... (1,583) (10,652) 68,198
Income tax expense ................................. $203,114 $139,451 $185,977
For all periods presented, we have computed current and deferred tax expense using our stand-alone
effective tax rate. As of December 31, 2007, our current income tax receivable represents amounts that we
expect to be refundable from the Internal Revenue Service and other tax authorities.
For the period January 1, 2005 through the Spin-Off date, we were a member of the IAC consolidated tax
group. Accordingly, IAC filed a federal income tax return and certain state income tax returns on a combined
basis with us for that period. IAC paid the entire combined income tax liability related to these filings. As
such, our estimated income tax liability for this period was transferred to IAC upon Spin-Off. Under the terms
of the Tax Sharing Agreement, IAC could make certain elections in preparation of these tax returns, which
changed the amount of income taxes owed for the period before the Spin-Off. We recorded those changes as
adjustments to stockholders’ equity in accordance with EITF No. 94-10, Accounting by a Company for the
Income Tax Effects of Transactions Among or With its Shareholders under FASB Statement 109.
We reduced our current income tax payable by $120.8 million, $34.3 million and $50.6 million for the
years ended December 31, 2007, 2006 and 2005, for tax deductions attributable to stock-based compensation.
For 2007, 2006 and 2005, we recorded $9.4 million, $16.9 million and $25.3 million of the related income tax
benefits of this stock-based compensation as a reduction of goodwill.
F-26
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)