Yahoo 2004 Annual Report Download - page 67

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under SFAS No. 115 ‘‘Accounting for Certain Investments in Debt and Equity Securities’’ and non-marketable securities
accounted for under the cost method. The EITF developed a basic three-step model to evaluate whether an investment is
other-than-temporarily impaired. In September 2004, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
Staff Position EITF 03-01-1, which delays the effective date until additional guidance is issued for the application of the
recognition and measurement provisions of EITF 03-01 to investments in securities that are impaired. However, the
disclosure requirements are effective for annual periods ended after June 15, 2004. The Company is currently evaluating
the effect of this proposed statement on its financial position and results of operations.
In December 2004, the FASB issued SFAS No. 123R, ‘‘Share-Based Payment,’’ which requires companies to recognize in
the statement of operations all share-based payments to employees, including grants of employee stock options, based on
their fair values. Accounting for share-based compensation transactions using the intrinsic method supplemented by pro
forma disclosures will no longer be permissible. The new statement will be effective for public entities in periods
beginning after June 15, 2005. The Company has not yet completed its analysis of the impact of adopting SFAS 123R
and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new
statement will have a significant impact on the results of operations and net income per share of the Company as the
Company will be required to expense the fair value of all share based payments.
Note 2 BASIC AND DILUTED NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of common shares outstanding during the
period. Diluted net income per share is computed using the weighted average number of common and, if dilutive,
potential common shares outstanding during the period. Potential common shares consist of the incremental common
shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s
zero coupon senior convertible notes (the ‘‘Notes’’) (using the if-converted method). For 2002, 2003 and 2004, approxi-
mately 157 million, 87 million and 50 million options to purchase common stock, respectively, were excluded from the
calculation, as the exercise prices were greater than the average market price of the common stock during the year. See
Note 9 – ‘‘Long-Term Debt’’ for additional information related to the Notes.
The Company also accounts for the earnings per share impact of its Notes in accordance with EITF Issue No. 04-08,
‘‘The Effect of Contingently Convertible Debt on Diluted Earnings per Share’’ (‘‘EITF 04-08’’). EITF 04-08 requires
that contingently convertible debt be accounted for as convertible debt and included in diluted earnings per share
computations regardless of whether the market price trigger (or other contingent feature) has been met. The consensus
was effective retroactively beginning with reporting periods ending after December 15, 2004. The Company issued its
Notes in April 2003 and the number of diluted shares in the year ended December 31, 2003 has been revised to include
the shares related to the issuance of the Notes. The inclusion of these shares resulted in a decrease of $0.01 to previously
reported diluted earnings per share for the year ended December 31, 2003.
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