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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes [Abstract] |
INCOME TAXES | NOTE 9: INCOME TAXES The following table presents a summary of our domestic and foreign income before income taxes:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (In thousands) |
Domestic |  | $ | 133,361 |  |  | $ | 121,100 |  |  | $ | 121,964 |
Foreign |  |  | 148,614 |  |  |  | 150,794 |  |  |  | 102,451 |
Total |  | $ | 281,975 |  |  | $ | 271,894 |  |  | $ | 224,415 |
The following table presents a summary of the components of our provision for income taxes:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (In thousands) |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 55,877 |  |  | $ | 49,736 |  |  | $ | 42,568 |
State |  |  | 5,927 |  |  |  | 7,818 |  |  |  | 13,490 |
Foreign |  |  | 30,543 |  |  |  | 37,480 |  |  |  | 30,056 |
Current income tax expense |  |  | 92,347 |  |  |  | 95,034 |  |  |  | 86,114 |
Deferred income tax (benefit) expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (3,113 | ) |  |  | 216 |  |  |  | 972 |
State |  |  | (347 | ) |  |  | 148 |  |  |  | (215 | )
Foreign |  |  | (1,500 | ) |  |  | (1,295 | ) |  |  | (1,410 | )
Deferred income tax (benefit) expense: |  |  | (4,960 | ) |  |  | (931 | ) |  |  | (653 | )
Provision for income taxes |  | $ | 87,387 |  |  | $ | 94,103 |  |  | $ | 85,461 |
For all periods presented, current and deferred tax expense has been computed using our stand-alone effective rate. As of December 31, 2012, our current income tax receivable and income tax payable balances represent amounts that we will receive and pay, respectively, to the Internal Revenue Service and other tax authorities. For all periods prior to and through the Spin-Off date, we were a member of the Expedia consolidated tax group. Accordingly, Expedia filed a consolidated federal income tax return and certain state income tax returns with us for that period. Expedia will pay the entire income tax liability associated with these filings. As such, our estimated income tax liability for this period was transferred to Expedia upon Spin-Off and is not included in income taxes payable as of December 31, 2011. Under the terms of the Tax Sharing Agreement, Expedia can make certain elections in preparation of these tax returns which may change the amount of income taxes we owe for the period after the Spin-Off. Additionally, due to continuing ownership and business relationships after the Spin-Off, we may be considered to have a unitary relationship with Expedia from January 1, 2012 through December 11, 2012 for state income tax purposes. Consequently, we may file as part of a unitary combined group with Expedia for certain state tax returns for 2012. Our deferred tax assets and deferred tax liabilities as of December 31, 2012 and 2011 are as follows:
|  | December 31, |
|  | 2012 |  |  | 2011 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Stock-based compensation |  | $ | 21,605 |  |  | $ | 17,596 |
Net operating loss carryforwards |  |  | 15,005 |  |  |  | 9,415 |
Provision for accrued expenses |  |  | 6,824 |  |  |  | 5,950 |
Other |  |  | 4,298 |  |  |  | 4,597 |
Total deferred tax assets |  |  | 47,732 |  |  |  | 37,558 |
Less valuation allowance |  |  | (11,677 | ) |  |  | (9,239 | )
Net deferred tax assets |  | $ | 36,055 |  |  | $ | 28,319 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  | $ | (28,205 | ) |  | $ | (26,699 | )
Property and equipment |  |  | (10,313 | ) |  |  | (10,059 | )
Prepaid expenses |  |  | (2,087 | ) |  |  | (923 | )
Other |  |  | — |  |  |  | (148 | )
Total deferred tax liabilities |  | $ | (40,605 | ) |  | $ | (37,829 | )
Net deferred tax liability |  | $ | (4,550 | ) |  | $ | (9,510 | )
At December 31, 2012, we had federal, state and foreign net operating loss carryforwards (“NOLs”) of approximately $ 10.0 million, $7.3 million and $49.3 million. If not utilized, the federal and state NOLs will expire at various times between 2020 and 2032 and the foreign NOLs will expire at various times between 2012 and 2017. At December 31, 2012, we had a valuation allowance of $11.7 million related to the portion of net operating loss carryforwards and other items for which it is more likely than not that the tax benefit will not be realized. This amount represented an overall increase of $2.4 million over the amount recorded as of December 31, 2011. This increase represented an increase in valuation allowances on foreign net operating losses of $4.9 million and decreases in domestic valuation allowances of $2.5 million. This domestic valuation allowance decrease was in connection with our acquisition of the non-controlling interest in one of our subsidiaries. As a result of this transaction, the subsidiary will meet the requirements for being included in our consolidated federal income tax return. Due to certain limitations in the Internal Revenue Code, this subsidiary’s net operating losses cannot be used to reduce the taxable income of other members of the consolidated group. Therefore, as required by GAAP, we considered prudent, feasible tax planning strategies, within management’s control, that could be successfully implemented to allow utilization of these losses. We have not provided for deferred U.S. income taxes on undistributed earnings of certain foreign subsidiaries that we intend to reinvest permanently outside the United States; the total amount of such earnings as of December 31, 2012 and 2011 was $371.6 million and $258.0 million, respectively. Should we distribute or be treated under certain U.S. tax rules as having distributed earnings of foreign subsidiaries in the form of dividends or otherwise, we may be subject to U.S. income taxes. Due to complexities in tax laws and various assumptions that would have to be made, it is not practicable at this time to estimate the amount of unrecognized deferred U.S. taxes on these earnings. A reconciliation of the provision for income taxes to the amounts computed by applying the statutory federal income tax rate to income before income taxes is as follows:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (In thousands) |
Income tax expense at the federal statutory rate of 35% |  | $ | 98,691 |  |  | $ | 95,163 |  |  | $ | 78,545 |
Foreign rate differential |  |  | (25,069 | ) |  |  | (15,319 | ) |  |  | (6,947 | )
State income taxes, net of effect of federal tax benefit |  |  | 5,581 |  |  |  | 4,240 |  |  |  | 7,716 |
Unrecognized tax benefits and related interest |  |  | 4,853 |  |  |  | 2,570 |  |  |  | 1,920 |
Non-deductible transaction costs |  |  | — |  |  |  | 2,426 |  |  |  | — |
Change in valuation allowance |  |  | 2,535 |  |  |  | 3,451 |  |  |  | 3,639 |
Other, net |  |  | 796 |  |  |  | 1,572 |  |  |  | 588 |
Provision for income taxes |  | $ | 87,387 |  |  | $ | 94,103 |  |  | $ | 85,461 |
During the fourth quarter of 2012, we restructured our non-US operations to align our global structure for more efficient treasury management and global cash deployment. As a result, and due to the continued expansion of our non-US operations, we expect our effective tax rate to continue to decrease. During 2011, the Singapore Economic Development Board accepted our application to receive a tax incentive under the International Headquarters Award. This incentive provides for a reduced tax rate on qualifying income of 5% as compared to Singapore’s statutory tax rate of 17% and is conditional upon our meeting certain employment and investment thresholds. This agreement is set to expire on June 30, 2016, with the ability to extend for another five years. This benefit resulted in a decrease to the 2012 tax provision of $4.3 million. By virtue of previously filed consolidated income tax returns filed with Expedia, we are routinely under audit by federal, state and foreign tax authorities. We are currently under an IRS audit for the 2009 and 2010 tax years, and have various ongoing state income tax audits. As of December 31, 2012, no material assessments have resulted from these audits. 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 2005. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (In thousands) |
Balance, beginning of year |  | $ | 12,900 |  |  | $ | 6,342 |  |  | $ | 2,672 |
Increases to tax positions related to the current year |  |  | 11,854 |  |  |  | 5,631 |  |  |  | 3,913 |
Increases to tax positions related to the prior year |  |  | 540 |  |  |  | 927 |  |  |  | 2,123 |
Reductions due to lapsed statute of limitations |  |  | — |  |  |  | — |  |  |  | (2,366 | )
Decreases to tax positions related to the prior year |  |  | — |  |  |  | — |  |  |  | — |
Settlements during current year |  |  | (1,245 | ) |  |  | — |  |  |  | — |
Balance, end of year |  | $ | 24,049 |  |  | $ | 12,900 |  |  | $ | 6,342 |
As of December 31, 2012, we had $24.0 million of unrecognized tax benefits, which is classified as long-term and included in other long-term liabilities. Included in this balance at December 31, 2012 was $10.2 million of liabilities for uncertain tax positions that, if recognized, would decrease our provision for income taxes. We recognize interest and penalties related to our liabilities for uncertain tax positions in the provision for income taxes. During the years ended December 31, 2012, 2011, and 2010, we recognized $1.0 million of interest expense, net of federal benefit and penalties, related to our liabilities for uncertain tax positions. We estimate that none of these amounts will be paid within the next year.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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