Yahoo 2008 Annual Report Download - page 96

Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
The provision for income taxes differs from the amount computed by applying the federal statutory income tax
rate to income before provision for income taxes as follows (in thousands):
Years Ended December 31,
2006(*) 2007(*) 2008
Income tax at the United States federal statutory rate of 35 percent ......... $384,300 $297,297 $ 33,530
State income taxes, net of federal benefit ............................. 43,297 32,942 (8,395)
Change in valuation allowance ..................................... 15,206 9,806 25,674
Stock-based compensation expense .................................. 18,652 34,011 44,938
Research tax credits .............................................. (5,300) (8,618) (13,954)
Effect of non-U.S. operations ....................................... 5,246 (37,238) 18,403
Meals and entertainment .......................................... 1,911 2,770 2,816
Settlement with tax authorities ...................................... — — (5,245)
Goodwill impairment charge ....................................... — — 170,644
Other .......................................................... (5,301) 6,293 (5,694)
Provision for income taxes ..................................... $458,011 $337,263 $262,717
(*) Certain reclassifications have been made to prior year amounts in order to conform to the current year
presentation.
The significantly higher effective tax rate in 2008 was primarily caused by the $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. The 2007 provision for income taxes reflects the tax benefit related to the
release of deferred tax liabilities in connection with changes to the Company’s worldwide entity structure in 2007.
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):
December 31,
2007 2008
Deferred income tax assets:
Net operating loss and tax credit carryforwards ............................. $185,646 $ 195,306
Stock-based compensation expense ...................................... 311,955 287,417
Non-deductible reserves and expenses .................................... 110,894 159,735
Intangible assets ..................................................... 54,103 36,664
Gross deferred income tax assets .................................... 662,598 679,122
Valuation allowance .............................................. (66,488) (83,550)
Deferred income tax assets ......................................... $596,110 $ 595,572
Deferred income tax liabilities:
Unrealized investment gains ............................................ $ (14,136) $ (4,838)
Purchased intangible assets ............................................ (79,806) (25,942)
Investments in equity interests .......................................... (147,343) (453,802)
Deferred income tax liabilities ...................................... $(241,285) $(484,582)
Net deferred income tax assets .......................................... $354,825 $ 110,990
90