Yahoo 2012 Annual Report Download - page 120

Significant variances year over year as shown above are further explained as follows:
• In 2012, the Company made a one-time distribution of foreign earnings resulting in an overall net benefit of
approximately $117 million. The benefit is primarily due to excess foreign tax credits. Of the $117 million,
$102 million is included above within “effect of non-U.S. operations.”
• 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.
• 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.
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,
2011 2012
Deferred income tax assets:
Net operating loss and tax credit carryforwards ............................. $152,810 $219,054
Stock-based compensation expense ....................................... 143,799 81,910
Non-deductible reserves and expenses .................................... 79,240 161,782
Unrealized investment gains ............................................ 3,497 3,584
Intangible assets ...................................................... 6,632 5,861
Gross deferred income tax assets ..................................... 385,978 472,191
Valuation allowance ............................................... (53,140) (51,503)
Deferred income tax assets ......................................... $332,838 $420,688
Deferred income tax liabilities:
Purchased intangible assets ............................................. (36,127) (29,960)
Investments in equity interests ........................................... (535,396) (13,120)
Deferred income tax liabilities ....................................... $(571,523) $ (43,080)
Net deferred income tax assets (liabilities) ................................. $(238,685) $377,608
As of December 31, 2012, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $143 million and $127 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 state research tax credit carryforward for income tax purposes is approximately
$167 million and it can be carried forward indefinitely. Tax credit carryforwards that result from the exercise of
employee stock options are not recorded on the Company’s consolidated balance sheets and 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 $52 million as of December 31, 2012 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, 2012 relates to foreign net
operating loss carryforwards that will reduce the provision for income taxes if and when recognized.
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