Yahoo 2005 Annual Report Download - page 92

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As of December 31, 2005, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $2.7 billion and $1.0 billion, respectively. If not utilized, the federal net
operating loss carryforwards will begin to expire in 2008, and approximately $422 million of the state net
operating loss carryforwards will expire in 2006. The Company’s federal and state research tax credit
carryforwards for income tax purposes are approximately $94 million and $99 million, respectively. If not
utilized, the federal research tax credit carryforwards will begin to expire in 2010. The state research tax
credit carryforwards will not expire.
The Company has a valuation allowance of approximately $1.5 billion as of December 31, 2005 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 operating results, ongoing tax planning and forecasts of
future taxable income on a jurisdiction by jurisdiction basis.
Approximately $966 million of the deferred income tax asset balance as of December 31, 2005 pertains to
certain net operating loss carryforwards and credit carryforwards resulting from the exercise of employee
stock options. Approximately $215 million of the deferred income tax asset balance relates to net
operating losses acquired in certain business combinations and will result in adjustments to goodwill if and
when recognized. Approximately $96 million of the deferred income tax asset balance relates to foreign
net operating loss and credit carryforwards and will reduce the provision for income taxes if and when
recognized. The benefit of the remaining $1,197 million of unrealized deferred income tax assets will be
accounted for as a credit to additional paid-in capital if and when recognized.
The Company provides United States income taxes on the earnings of foreign subsidiaries unless the
subsidiaries’ earnings are considered indefinitely reinvested outside the United States. As of
December 31, 2005, 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 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 Programs. In March 2001, the Company’s Board of Directors authorized the
Company to repurchase up to $500 million of its outstanding shares of common stock over the following
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 this stock repurchase program until March 2005.
Under this program, from March 2001 through December 31, 2004, the Company repurchased 32.9 million
shares of common stock at an average price of $4.86 per share for total consideration of $160 million.
During this period, of the shares repurchased, 32.1 million shares were purchased from SOFTBANK at an
average price of $4.84 per share. During the three months ended March 31, 2005, the Company
repurchased an additional 4.9 million shares in the open market, at an average price of $33.60 per share,
for total consideration of $165 million. This stock repurchase program has expired.
In March 2005, the Company’s Board of Directors authorized a new stock repurchase program for the
Company to repurchase up to $3.0 billion of its outstanding shares of common stock over the next five
years, depending on market conditions, share price and other factors. Under this program in the year