Home Shopping Network 2015 Annual Report Download - page 59

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The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2015 and 2014 are presented below (in thousands). The valuation allowance is related
to items for which it is more likely than not that the tax benefit will not be realized.
December 31,
2015 2014
Deferred tax assets:
Provision for accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,472 $ 34,987
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,996 13,969
Stock-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,132 12,072
Net operating losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 1,705
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,160 4,098
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,412 66,831
Less valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (528) (1,577)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,884 65,254
Deferred tax liabilities:
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (91,051) (92,267)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,170) (12,890)
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,161) (16,216)
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116,382) (121,373)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (44,498) $ (56,119)
At December 31, 2015, HSNi had $7.5 million of net operating loss carryforwards which begin expiring in 2016. As of
December 31, 2015 and 2014, HSNi had a valuation allowance of approximately $0.5 million and $1.6 million, respectively.
Valuation allowances are recorded for certain deferred tax assets related to foreign and separate state net operating losses.
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,
2015 2014 2013
Income tax provision at the federal statutory rate of 35% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (94,099) $ (97,135) $ (96,649)
State income taxes, net of effect of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,730) (6,306) (6,293)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,214 (1,102) 5,250
Income tax provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (99,615) $ (104,543) $ (97,692)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in
thousands):
2015 2014 2013
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,011 $ 910 $ 682
Additions based on tax positions related to the current year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 525 417
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777 576 —
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (189)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,418 $ 2,011 $ 910
As of December 31, 2015 and 2014, the unrecognized tax benefits, including interest, were $4.1 million and $2.4 million,
respectively. At December 31, 2015 and 2014, there are approximately $3.3 million and $2.4 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, 2015, 2014
and 2013. At December 31, 2015 and 2014, 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.