Yahoo 2007 Annual Report Download - page 91

were issued at par and bear no interest. The Notes are convertible into Yahoo! common stock at a conversion price
of $20.50 per share, which would result in the issuance of an aggregate of approximately 37 million shares, subject
to adjustment upon the occurrence of specified events. Each $1,000 principal amount of the Notes will initially be
convertible into 48.78 shares of Yahoo! common stock.
The Notes are convertible prior to the final maturity date (1) during any fiscal quarter if the closing sale price of the
Company’s common stock for at least 20 trading days in the 30 trading-day period ending on the last trading day of
the immediately preceding fiscal quarter exceeded 110 percent of the conversion price on that 30th trading day,
(2) during the period beginning January 1, 2008 through the maturity date, if the closing sale price of the Company’s
common stock on the previous trading day was 110 percent or more of the then current conversion price and
(3) upon specified corporate transactions. Upon conversion, the Company has the right to deliver cash in lieu of
common stock. The Company may be required to repurchase all of the Notes following a fundamental change of the
Company, such as a change of control, prior to maturity at face value. The Company may not redeem the Notes prior
to their maturity.
Each $1,000 principal amount of the Notes is convertible on or prior to April 1, 2008 if the market price of the
Company’s common stock reaches a specified threshold ($22.55) for a defined period of time or specified corporate
transactions occur. As of January 1, 2008, the specified price threshold had been met and the Notes are convertible
at any time through March 31, 2008. The Notes may be convertible on April 1, 2008 depending on whether the
specified price threshold is met for the applicable periods or a specified corporate transaction occurs prior to April 1,
2008. The Company will be required to pay the outstanding principal amount of any Notes not converted by the
holders on or before April 1, 2008 in cash. Consequently, the Notes have been classified as short-term debt in the
consolidated balance sheet as of December 31, 2007. Although the Company has sufficient available funds to pay
the Notes, in the event that the Notes are not converted on or before their maturity date, it may seek financing to fund
the repayment of the Notes as well as to fund other strategic initiatives.
As of December 31, 2007, the fair value of the Notes was approximately $880 million based on quoted market
prices. The shares issuable upon conversion of the Notes have been included in the computation of diluted net
income per share since the Notes were issued.
Note 10 INCOME TAXES
The components of income before income taxes, earnings in equity interests, and minority interests are as follows
(in thousands):
2005 2006 2007
Years Ended December 31,
United States ................................... $2,047,284 $1,002,673 $666,533
Foreign
(*)
...................................... 496,298 95,327 182,891
Income before income taxes, earnings in equity interests,
and minority interests ......................... $2,543,582 $1,098,000 $849,424
(*)
Includes non-cash gains of $338 million, $15 million, and $8 million in 2005, 2006 and 2007, respectively, related to the divestiture of
Yahoo! China in connection with the Alibaba transaction (see Note 4 — “Investments in Equity Interests”). The majority of the tax on
the gain was provided in the United States as the gain was not taxable in any foreign jurisdiction.
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Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)