Home Shopping Network 2013 Annual Report Download - page 58

56
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):
Year Ended December 31,
2013 2012 2011
Income tax provision at the federal statutory rate of 35% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (96,649) $ (76,955) $ (72,715)
State income taxes, net of effect of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,293) (5,327) (6,386)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250 (1,091) (1,005)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (97,692) $ (83,373) $ (80,106)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in
thousands):
2013 2012 2011
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 682 $ 664 $ 630
Additions based on tax positions related to the current year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 — 225
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —18—
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189) — (191)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 910 $ 682 $ 664
As of December 31, 2013 and 2012, the unrecognized tax benefits, including interest, were $1.1 million and $0.9 million,
respectively. At December 31, 2013 and 2012, there are approximately $0.9 million and $0.5 million of unrecognized tax
benefits that, if recognized, would affect the annual effective tax rate.
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, 2013, 2012
and 2011. At December 31, 2013 and 2012, 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.
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 Internal Revenue Service ("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. HSNi does not anticipate any material adjustments to our tax liabilities resulting from
any of these examinations.
HSNi and several companies previously owned by IAC, were spun-off from IAC on August 20, 2008. In connection
with the spin-off, HSNi entered into a Tax Sharing Agreement with IAC pursuant to which, among other things, each of the
Spincos has indemnified IAC and the other Spincos for any taxes resulting from the Spin-off of such Spinco (and any related
interest, penalties, legal and professional fees, and all costs and damages associated with related shareholder litigation or
controversies) to the extent such amounts result from (i) any act or failure to act by such Spinco described in the covenants in
the Tax Sharing Agreement, (ii) any acquisition of equity securities or assets of such Spinco or a member of its group, and
(iii) any breach by such Spinco or any member of its group of any representation or covenant contained in the separation
documents or in the documents relating to the IRS private letter ruling and/or tax opinions. In the event an adjustment with
respect to a pre-spin-off period for which IAC is responsible results in a tax benefit to HSNi in a post-spin-off period, HSNi
will be required to pay such tax benefit to IAC. In general, IAC controls all audits and administrative matters and other tax
proceedings relating to the consolidated federal income tax return of the IAC group and any other tax returns for which the IAC
group is responsible. The provisions set forth in the Tax Sharing Agreement could subject HSNi to future tax contingencies.