Yahoo 2011 Annual Report Download - page 50

Income Taxes. The provision for income taxes for the year ended December 31, 2011 differs from the amount
computed by applying the federal statutory income tax rate to income before provision for income taxes and
earnings in equity interests as follows (dollars in thousands):
Years Ended December 31,
2009 (1) 2010 (1) 2011 (1)
Income tax at the U.S. federal statutory rate of 35 percent ..... $200,976 35% $ 374,638 35% $289,630 35%
State income taxes, net of federal benefit ................... (4,549) (1)% 54,268 5% 4,627 1%
Change in valuation allowance ........................... 13,521 2% (1,315) — (5,975) (1)%
Stock-based compensation expense ....................... 28,322 5% 4,404 — 18,213 2%
Research tax credits ................................... (11,046) (2)% (10,345) (1)% (10,499) (1)%
Effect of non-U.S. operations ............................ 20,126 4% (17,344) (2)% (42,806) (5)%
Resolution with tax authorities ........................... — — (159,168) (14)% (14,685) (2)%
Tax gain in excess of book gain from sales of Zimbra, Inc. and
HotJobs due to basis differences ....................... — — 23,184 2% — —
Tax restructuring ...................................... (25,583) (4)% (43,361) (4)% — —
Other ............................................... (2,446) (1)% (3,438) — 3,262 —
Provision for income taxes .............................. $219,321 38% $ 221,523 21% $241,767 29%
(1) Percent of income before income taxes and earnings in equity interests.
The 2011 differences above are further explained as follows:
• State taxes were higher in 2010 due to a reduction of deferred tax assets associated with an effective tax rate
reduction in California that started in 2011.
• Stock-based compensation increases our effective tax rate to the extent that stock-based compensation expense
is recorded in our financial statements is non-deductible for tax purposes. This primarily occurs with regard to
options granted outside the U.S.
• Our effective tax rate in all periods is the result of the mix of income earned in various tax jurisdictions that
apply a broad range of income tax rates. In 2011, we received tax rulings in foreign jurisdictions that provided
favorable tax treatments.
• In 2010, we had a favorable resolution of certain issues in an IRS examination of our 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. In 2011, we
reached agreements with certain state tax authorities in connection with adjustments to income tax returns for
years prior to 2009.
• During 2010, in connection with tax restructuring activities, we 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.
Our gross amount of unrecognized tax benefits as of December 31, 2011 is $533 million, of which $394 million
is recorded on the consolidated balance sheets. The gross unrecognized tax benefits as of December 31, 2011
decreased by $64 million from the recorded balance as of December 31, 2010 due to favorable settlements of tax
audits in 2011. Since there can be no assurance as to the outcome of tax audits currently in progress, it is
reasonably possible that over the next twelve-month period we may experience an increase or decrease in our
unrecognized tax benefits. It is not possible to determine either the magnitude or the range of any increase or
decrease at this time.
During the last quarter of 2011, we commenced discussions with the IRS Appeals Division to settle the contested
adjustments for certain intercompany transfer pricing matters from the 2005 and 2006 income tax examination.
While no agreement has been reached, the discussions are proceeding. If the matter is resolved on the basis that
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