Yahoo 2006 Annual Report Download - page 95

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate
to income before income taxes as follows (in thousands):
2004
(3)
2005
(3)
2006
(2)
Years Ended December 31,
Income tax at the United States federal statutory rate of
35 percent ...................................... $414,758 $ 890,254 $384,300
State income taxes, net of federal benefit ................. 49,920 113,685 43,297
Change in valuation allowance ........................ (40,612) 16,342 15,206
Non-deductible stock-based compensation ................ 1,687 1,400 18,652
Capital (loss)/gain on subsidiary restructuring transaction
(1)
. . . — (248,284) 10,616
Other ........................................... 12,213 (5,581) (14,060)
Provision for income taxes.......................... $437,966 $ 767,816 $458,011
(1)
During 2005, the Company completed a taxable liquidation of a subsidiary. The transaction gave rise to a capital loss for tax purposes,
resulting in a tax benefit of approximately $248 million being recorded in 2005.
(2)
During 2006, the Company recorded a reduction in deferred tax liabilities totaling $17 million to correct amounts accrued prior to
2004.
(3)
Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of
deferred income tax assets and liabilities are as follows (in thousands):
2005 2006
December 31,
Deferred income tax assets:
Net operating loss and tax credit carryforwards .................. $1,277,269 $ 276,098
Stock-based compensation expense ........................... — 150,552
Non-deductible reserves and expenses
(*)
....................... 223,091 162,846
Intangible assets
(*)
....................................... 122,021 72,705
Gross deferred income tax assets............................. 1,622,381 662,201
Valuation allowance ...................................... (1,507,848) (95,779)
Deferred income tax assets ............................... $ 114,533 $ 566,422
Deferred income tax liabilities:
Unrealized investment gains ................................ $ — $ (22,239)
Purchased intangible assets
(*)
............................... (112,860) (38,109)
Investments in equity interests .............................. (131,927) (127,212)
Other
(*)
............................................... (36,443) (28,789)
Deferred income tax liabilities............................. $ (281,230) $(216,349)
Net deferred income tax (liabilities)/assets. . .................... $ (166,697) $ 350,073
(*)
Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
As of December 31, 2006, the Company’s federal and state net operating loss carryforwards for income tax purposes
were approximately $1.4 billion and $0.3 billion, respectively. If not utilized, the federal net operating loss
carryforwards will begin to expire in 2008 and the state net operating loss carryforwards will begin to expire in
85
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)