Travelzoo 2011 Annual Report Download - page 75

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During 2011, an income tax benefit of $268,000 was recorded in stockholders’ equity for the tax benefit of stock option
exercises.
Income tax expense from continuing operations for the years ended December 31, 2009, 2010 and 2011 differed from the
amounts computed by applying the U.S. federal statutory tax rate applicable to the Company’s level of pretax income as a result of the
following (in thousands):
2009 2010
2011
Federal tax at statutory rates ..................................................................... $ 4,792 $ 8,218 $ 5,363
State taxes, net of federal income tax benefit ........................................... 1,004 1,488 385
Foreign losses not benefited ..................................................................... 1,434 500 —
Utilization of net operating loss with a full valuation allowance .............. — — (1,235)
Settlement with the State of Delaware ...................................................... — — 7,000
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on-deductible expenses and other .......................................................... 43 118 492
Total income tax expense ......................................................................... $ 7,273 $ 10,324 $ 12,005
Operating losses incurred in the foreign subsidiaries were treated as having no recognizable tax benefit.
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities
as of December 31, 2010 and 2011, are as follows (in thousands):
2010
2011
Deferred tax assets:
Foreign net operating loss carryforwards .......................................... $ 6,246 $ 4,762
State income taxes ............................................................................. 858 651
Accruals and allowances .................................................................... 622 1,118
Capital loss ........................................................................................ 1,787 1,754
Deferred revenue ............................................................................... 342 631
Deferred rent ...................................................................................... 279 219
Total deferred tax assets ........................................................... 10,134 9,135
Valuation allowance ................................................................. (8,033) (6,516)
Total deferred tax assets net of valuation allowance ...... 2,101 2,619
Deferred tax liabilities:
US tax on undistributed earnings ....................................................... (77) (251)
Property, equipment and intangible assets .................................................. (263) (270)
Total deferred tax liabilities ..................................................... (340) (521)
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et deferred tax assets ................................................................................ $ 1,761 $ 2,098
The Company has a valuation allowance of approximately $4.8 million as of December 31, 2011 related to foreign net operating
loss carryforwards of approximately $18.3 million for which it is more likely than not that the tax benefit will not be realized. These
net operating loss carryforwards do not expire. The Company also has a valuation allowance of $1.8 million as of December 31, 2011
related to the capital loss carryforward of $4.5 million for which it is more likely than not that the tax benefit will not be realized. If
not utilized, the capital loss carryforward will expire in 2014. The total amount of the valuation allowance represented a decrease of
approximately $1.5 million from the amount recorded as of December 31, 2010 and was primarily due to the utilization of foreign net
operating loss carryforwards and a decrease in valuation allowance recorded against the net operating loss carryforwards and capital
loss carryforwards due to the change in tax rates in 2011.
United States income and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S.
subsidiaries. The undistributed earnings on a book basis for the non-U.S. subsidiaries are approximately $1.2 million. The Company
intends to reinvest these earnings indefinitely in its operations outside the U.S. If the undistributed earnings are remitted to the U.S.
these amounts would be taxable in the U.S at the current federal and state tax rates net of foreign tax credits. Also, depending on the
jurisdiction any distribution may be subject to withholding taxes at rates applicable for that jurisdiction.