Yahoo 2010 Annual Report Download - page 89

• In 2010, the Company had a favorable resolution of certain issues in an IRS examination of its 2005 and 2006
U.S. federal income tax returns resulting in a reduction of reserves for tax uncertainties and the availability of
capital loss carryforwards to offset the tax on the gain from the sales of Zimbra, Inc. and HotJobs.
• During 2010, in connection with tax restructuring activities, the Company reached a formal agreement with the
IRS through a pre-filing agreement to treat certain intercompany bad debts as deductible business expenses on
the 2009 federal income tax return.
The 2008 provision for income taxes reflects a $488 million goodwill impairment charge, the majority of which
was non-deductible for tax purposes. In addition, the 2008 effective tax rate also included the cumulative tax
benefit of a favorable state tax ruling granted in 2008 and retroactive to 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,
2009 2010
Deferred income tax assets:
Net operating loss and tax credit carryforwards ............................. $171,883 $ 152,138
Stock-based compensation expense ...................................... 234,108 178,294
Non-deductible reserves and expenses .................................... 268,015 166,015
Intangible assets ..................................................... 14,336 9,283
Gross deferred income tax assets .................................... 688,342 505,730
Valuation allowance .............................................. (63,364) (60,176)
Deferred income tax assets ......................................... $624,978 $ 445,554
Deferred income tax liabilities:
Unrealized investment gains ............................................ $ 4,404 $ 3,192
Purchased intangible assets ............................................ (9,684) (11,050)
Investments in equity interests .......................................... (405,880) (447,022)
Deferred income tax liabilities ...................................... $(411,160) $(454,880)
Net deferred income tax assets (liabilities) ................................ $213,818 $ (9,326)
As of December 31, 2010, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $211 million and $26 million, respectively. If not utilized, the federal and state net
operating loss carryforwards will begin to expire in 2021. The Company’s federal and state research tax credit
carryforwards for income tax purposes are approximately $115 million and $183 million, respectively. If not
utilized, the federal research tax credit carryforwards will begin to expire in 2019. The state research tax credit
carryforwards will not expire. Federal and state net operating loss and tax credit carryforwards that result from
the exercise of employee stock options are not recorded on the Company’s consolidated balance sheets. Federal
and state net operating loss and tax credit carryforwards that result from the exercise of employee stock options
are accounted for as a credit to additional paid-in capital if and when realized through a reduction in income
taxes payable.
The Company has a valuation allowance of approximately $60 million as of December 31, 2010 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, 2010 relates primarily to foreign
net operating loss and credit carryforwards that will reduce the provision for income taxes if and when
recognized.
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