Yahoo 2008 Annual Report Download - page 47

The following table summarizes the differences between our provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before income taxes (dollars in thousands):
Years Ended December 31,
2006(2) (1) 2007(2) (1) 2008 (1)
Income tax at the United States federal statutory rate of 35
percent ....................................... $384,300 35% $297,297 35% $ 33,530 35%
State income taxes, net of federal benefit .............. 43,297 4% 32,942 4% (8,395) (9)%
Change in valuation allowance ...................... 15,206 1% 9,806 1% 25,674 27%
Stock-based compensation expense ................... 18,652 2% 34,011 4% 44,938 47%
Research tax credits ............................... (5,300) 0% (8,618) (1)% (13,954) (15)%
Effect of non-U.S. operations ........................ 5,246 0% (37,238) (4)% 18,403 19%
Meals and entertainment ........................... 1,911 0% 2,770 0% 2,816 3%
Settlement with tax authorities ....................... — — — — (5,245) (5)%
Goodwill impairment charge ........................ — — — — 170,644 178%
Other ........................................... (5,301) 0% 6,293 1% (5,694) (6)%
Provision for income taxes ...................... $458,011 42% $337,263 40% $262,717 274%
(1) Percent of income before provision for income taxes, earnings in equity interests, and minority interests.
(2) Certain reclassifications have been made to prior year amounts in order to conform to the current year
presentation.
Our effective tax rate for the year ended December 31, 2008 was 274 percent, compared to 40 percent in the prior
year. The higher effective tax rate in 2008 was mainly attributable to a decrease in 2008 pre-tax income resulting
from a $488 million goodwill impairment charge, the majority of which was non-deductible for tax purposes, as
well as the impact of the geographic mix of earnings. The 2008 state income tax provision reflects the cumulative
tax benefit of a favorable state tax ruling granted in 2008 and retroactive to 2007. Our effective tax rate for the
year ended December 31, 2007 was 40 percent, compared to 42 percent in 2006. The decreased rate was mainly
attributable to the tax benefit related to the release of deferred tax liabilities in connection with changes to our
worldwide entity structure in 2007.
Earnings in Equity Interests. Earnings in equity interests for the year ended December 31, 2008 was
approximately $597 million, including a $401 million non-cash gain related to Alibaba Group’s IPO of
Alibaba.com, net of tax. In connection with the IPO, we made a direct investment of 1 percent in Alibaba.com. In
2008, we also recorded an impairment charge of $30 million, net of tax, within earnings in equity interests to
reduce the carrying value of the Alibaba.com investment to fair value. Earnings in equity interests for the year
ended December 31, 2007 was approximately $151 million (net of $7 million related to tax benefits on dividends
received and net of $17 million related to the tax benefit of our share of Alibaba Group’s loss). Earnings in
equity interests for the year ended December 31, 2006 was $112 million (net of $6 million related to tax expense
on dividends received and net of $7 million related to the tax benefit of our share of Alibaba Group’s loss). See
Note 4—“Investments in Equity Interests” in the Notes to the consolidated financial statements for additional
information.
Minority Interests in Operations of Consolidated Subsidiaries. Minority interests in operations of consolidated
subsidiaries represents the minority holders’ percentage share of income or losses from the subsidiaries in which
we hold a majority, but less than 100 percent, ownership interest and consolidate the subsidiaries’ results in our
financial statements. Minority interests in operations of consolidated subsidiaries was approximately $6 million
in 2008, compared to $3 million and $1 million in 2007 and 2006, respectively. Minority interests recorded in
2008, 2007, and 2006 were related to our Yahoo! 7 joint venture arrangement.
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