Yahoo 2011 Annual Report Download - page 96

• 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.
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,
2010 2011
Deferred income tax assets:
Net operating loss and tax credit carryforwards ............................. $152,138 $ 152,810
Stock-based compensation expense ...................................... 178,294 143,799
Non-deductible reserves and expenses .................................... 166,015 79,240
Intangible assets ..................................................... 9,283 6,632
Gross deferred income tax assets .................................... 505,730 382,481
Valuation allowance .............................................. (60,176) (53,140)
Deferred income tax assets ......................................... $445,554 $ 329,341
Deferred income tax liabilities:
Unrealized investment gains ............................................ $ 3,192 $ 3,497
Purchased intangible assets ............................................ (11,050) (36,127)
Investments in equity interests .......................................... (447,022) (535,396)
Deferred income tax liabilities ...................................... $(454,880) $(568,026)
Net deferred income tax liabilities ....................................... $ (9,326) $(238,685)
As of December 31, 2011, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $175 million and $141 million, respectively. The federal and state net operating
loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and
applicable state tax law. 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 $70 million and $185 million, respectively. If not utilized, the federal research tax credit
carryforwards will begin to expire in 2019. The state research tax credit can be carried forward indefinitely.
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 $53 million as of December 31, 2011 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, 2011 relates primarily 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, 2011, U.S. income taxes
were not provided for on a cumulative total of $3.2 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.
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