Yahoo 2004 Annual Report Download - page 83

As of December 31, 2004, the Company’s United States federal and state net operating loss carryforwards for income tax
purposes were approximately $3.1 billion and $2.3 billion, respectively. If not utilized, the federal net operating loss
carryforwards will begin to expire in 2008, and approximately $360 million of the state net operating loss carryforwards
will expire in 2005. The Company’s United States federal and state research and development tax credit carryforwards for
income tax purposes are approximately $94 million and $98 million, respectively. If not utilized, the federal tax credit
carryforwards will begin to expire in 2010.
The Company has a valuation allowance of approximately $1.4 billion as of December 31, 2004 to reduce deferred
income tax assets to the amount that is more likely than not to be realized in future periods. In evaluating the
Company’s ability to recover its deferred income tax assets the Company considers all available positive and negative
evidence, including its operating results, ongoing prudent and feasible tax planning strategies and forecasts of future
taxable income on a jurisdiction by jurisdiction basis. The change in valuation allowance from 2003 to 2004 was
primarily related to unrealized gains during the year on available-for-sale securities. See Note 14 – ‘‘Litigation Settlement’’
for additional information.
Approximately $1.3 billion of the deferred income tax asset balance at December 31, 2004 pertains to certain net
operating loss carryforwards and credit carryforwards resulting from the exercise of employee stock options. When
recognized, the tax benefit of these loss and credit carryforwards are accounted for as a credit to additional paid-in capital
rather than a reduction of the income tax provision. Approximately $100 million of the deferred income tax asset balance
relates to net operating losses acquired in certain business combinations and will adjust goodwill when recognized.
Approximately $68 million of the deferred income tax asset balance relates to foreign net operating losses that will reduce
the provision for income taxes if and when utilized.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are
considered indefinitely reinvested outside the United States. As of December 31, 2004 the Company had unrecorded
deferred income tax liabilities of approximately $16 million related to $45 million of cumulative net undistributed
earnings of foreign subsidiaries. These earnings are considered to be indefinitely invested in operations outside the United
States, as the Company intends to utilize these amounts to fund future expansion of its international operations.
Note 11 STOCKHOLDERS’ EQUITY
Stockholder Rights Plan. In March 2001, the Company adopted a Stockholder Rights Plan. Under the plan, the rights were
distributed as a dividend at the rate of one Right for each share of common stock held by stockholders of record as of
the close of business on March 20, 2001. The Stockholder Rights Plan was not adopted in response to any effort to
acquire control of the Company. The rights will expire on March 1, 2011.
Stock Repurchase Program. In March 2001, the Company announced that its Board of Directors had authorized the
Company to repurchase up to $500 million of its outstanding shares of common stock from time to time over the next
two years, depending on market conditions, share price and other factors. In March 2003, the Company’s Board of
Directors authorized a two-year extension of the stock repurchase program. The Company may utilize equity instrument
contracts to facilitate the repurchase of common stock. From March 2001 through December 31, 2004, the Company
had repurchased 32,917,240 shares of common stock at an average price of $4.86 per share for a total amount of
approximately $160 million. Of the shares repurchased, 32,067,240 shares were purchased from SOFTBANK at an
average price of $4.84 per share. No shares were repurchased during the year ended December 31, 2004. Treasury stock
is accounted for under the cost method.
Structured Stock Repurchases. During the year ended December 31, 2004, the Company entered into two structured stock
repurchase transactions which settle in cash or stock depending on the market price of Yahoo!’s common stock on the
date of maturity. In February 2004, the Company entered into a six month structured stock repurchase transaction in the
amount of $50 million which matured in August 2004 resulting in the Company receiving a cash settlement of
approximately $54 million. In August 2004, the Company entered into a $100 million transaction which will mature in
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