Expedia 2010 Annual Report Download - page 98

A reconciliation of total income tax expense to the amounts computed by applying the statutory federal
income tax rate to income before income taxes is as follows:
Year Ended December 31,
2010 2009 2008
(In thousands)
Income tax (benefit) expense at the federal statutory rate of
35% ............................................. $217,199 $160,308 $(880,146)
Foreign rate differential ............................... (37,804) (2,728) 2,700
State income taxes, net of effect of federal tax benefit ........ 8,706 7,089 11,317
Unrecognized tax benefits and related interest .............. (5,536) 3,923 12,525
Non-deductible goodwill impairment ..................... — — 855,550
Worthless stock deduction ............................. — (23,124) —
Other, net ........................................... 12,443 8,932 4,020
Income tax expense ................................... $195,008 $154,400 $ 5,966
The effective tax rate in 2010 was lower than the 35% federal statutory rate primarily due to increase in
earnings in jurisdictions outside the United States, where our effective rate is lower. During 2009, we recorded a
tax benefit of $23 million related to a worthless stock deduction associated with the closure of a foreign
subsidiary.
By virtue of the previously filed separate company and consolidated income tax returns filed with IAC, we
are routinely under audit by federal, state, local and foreign authorities. These audits include questioning the
timing and the amount of income and deductions and the allocation of income among various tax jurisdictions.
Annual tax provisions include amounts considered sufficient to pay assessments that may result from the
examination of prior year returns. We are no longer subject to tax examinations by tax authorities for years prior
to 2003.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows, in
thousands:
2010 2009 2008
Balance, beginning of year .............................. $190,708 $179,839 $173,593
Increases to tax positions related to the current year .......... 12,414 2,117 15,883
Increases to tax positions related to the prior year ............ 6,849 21,433 —
Decreases to tax positions related to the prior year ........... (95,687) (7,549) (22,520)
Reductions due to lapsed statute of limitations .............. (27,160) (708) —
Settlements during current year .......................... (913) (4,351) (4,911)
Interest and penalties .................................. (10,916) (73) 17,794
Balance, end of year ................................... $ 75,295 $190,708 $179,839
As of December 31, 2010, we had $75 million of unrecognized tax benefits, of which $74 million is
classified as long-term and included in other long-term liabilities.
Included in the balance at December 31, 2010 and 2009 were $53 million and $46 million of liabilities for
uncertain tax positions that, if recognized, would decrease our provision for income taxes.
During 2010, the IRS concluded its audit of our consolidated federal tax return for the periods ended
December 31, 2005 through December 31, 2007. As a result, we decreased our liability for uncertain tax
positions by $152 million, of which $16 million decreased our provision for income taxes, $112 million
increased additional paid-in capital and the remaining amount was primarily a decrease to deferred tax assets.
The increase in additional paid-in capital is attributable to excess tax benefits related to certain exercises of stock
options during 2005 and 2007, the cash benefits of which were recognized during those years.
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