Yahoo 2008 Annual Report Download - page 97

Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
During 2008, the Company recorded a deferred tax liability of $276 million in connection with the non-cash gain
recorded related to the IPO of Alibaba.com.
As of December 31, 2008, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $464 million and $115 million, respectively. Approximately $245 million of the
$464 million federal net operating loss carryforwards resulted from exercises of employee stock options and
were not recorded on the Company’s consolidated balance sheets. In accordance with SFAS 123R, such
unrecognized deferred tax benefits will be accounted for as a credit to additional paid-in-capital if and when
realized through a reduction in income tax payable. If not utilized, the federal net operating loss carryforwards
will begin to expire in 2019 and the state net operating loss carryforwards will begin to expire in 2010. The
Company’s federal and state research tax credit carryforwards for income tax purposes are approximately $149
million and $167 million, respectively. If not utilized, the federal research tax credit carryforwards will begin to
expire in 2010. The state research tax credit carryforwards will not expire.
The Company has a valuation allowance of approximately $84 million as of December 31, 2008 against certain
deferred income tax assets that are not more likely than not to be realized in future periods. In evaluating the
Company’s ability to realize its deferred income tax assets the Company considers all available positive and
negative evidence, including operating results, ongoing tax planning, and forecasts of future taxable income on a
jurisdiction by jurisdiction basis. The valuation allowance as of December 31, 2008 relates to foreign net
operating loss and credit carryforwards that will reduce the provision for income taxes if and when recognized.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’
earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2008, U.S. income taxes
were not provided for on a cumulative total of $1.5 billion of undistributed earnings for certain foreign
subsidiaries and a corporate joint venture. If these earnings were to be repatriated, the Company would be subject
to additional U.S. income taxes (subject to an adjustment for foreign tax credits). It is not practicable to
determine the income tax liability that might be incurred if these earnings were to be repatriated.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48,
the Company recognized a $46 million increase to the January 1, 2007 balance of retained earnings related to
adjustments to certain unrecognized tax benefits. A reconciliation of the beginning and ending amount of
unrecognized tax benefits in 2007 and 2008 is as follows (in thousands):
2007 2008
Unrecognized tax benefits balance at January 1 .................................. $619,578 $685,672
Gross increase for tax positions of prior years ................................... 39,554 70,474
Gross decrease for tax positions of prior years ................................... (24,433) (15,065)
Gross increase for tax positions of current year .................................. 50,973 58,667
Gross decrease for tax positions of current year .................................. — —
Settlements .............................................................. — (1,691)
Lapse of statute of limitations ................................................ — —
Unrecognized tax benefits balance at December 31 ............................... $685,672 $798,057
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