Home Shopping Network 2012 Annual Report Download - page 63

Table of Contents
Valuation allowances are recorded for certain deferred tax assets related to foreign net operating losses and deferred tax assets associated with
pre-Spin-off uncertain tax positions for which it is more likely than not that the benefit will be unrealized.
A reconciliation of the income tax provision to the amounts computed by applying the statutory federal income tax rate to earnings before
income taxes is shown as follows (in thousands):
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in thousands):
As of December 31, 2012 and 2011, the unrecognized tax benefits, including interest, were $0.9 million and $0.7 million , respectively.
Included in unrecognized tax benefits at December 31, 2012 and 2011 is approximately $0.2 million for tax positions which the ultimate
deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax
accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, other than the interest and
penalties, but would accelerate the payment of cash to the taxing authorities to an earlier period.
HSNi recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense. There is no material
interest on unrecognized tax benefits included in income tax expense for the years ended December 31, 2012, 2011 and 2010. At December 31,
2012 and 2011, HSNi has no material accrual for the payment of interest or penalties.
HSNi believes that it is reasonably possible that its unrecognized tax benefits could decrease by an immaterial amount within twelve
months of the current reporting date due to settlement with the taxing authority. An estimate of other changes in unrecognized tax benefits
cannot be made but are not expected to be significant.
HSNi is routinely under audit by federal, state, local and foreign tax authorities. These audits include questioning the timing and the
amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient
to pay assessments that may result from examination of prior year returns; however, the amount paid upon resolution of issues raised may differ
from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by HSNi are recorded in the period
they become known.
The IRS has concluded its examination of HSNi's consolidated federal income tax return for the year ended December 31, 2010 and its
limited scope examination of HSNi's consolidated federal income tax return for the year ended December 31, 2011. No material adjustments
resulted from these IRS examinations. In addition, various state income tax examinations are in process. We do not anticipate any material
adjustments to our tax liabilities resulting from any of these examinations.
55
Year Ended December 31,
2012 2011 2010
Income tax provision at the federal statutory rate of 35%
$
(76,955
)
$
(72,715
)
$
(58,316
)
State income taxes, net of effect of federal tax benefit
(5,327
)
(6,386
)
(6,474
)
Other, net
(1,091
)
(1,005
)
(1,387
)
Income tax provision
$
(83,373
)
$
(80,106
)
$
(66,177
)
2012 2011 2010
Balance at beginning of year
$
664
$
630
$
514
Additions based on tax positions related to the current year
—
225
191
Additions for tax positions of prior years
18
—
135
Reductions for tax positions of prior years
— (
191
)
(210
)
Balance at end of year
$
682
$
664
$
630