Yahoo 2010 Annual Report Download - page 91

The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. states and foreign
jurisdictions. The tax years 1995 to 2009 remain open to examination by the major taxing jurisdictions in which
the Company is subject to tax.
During the year ended December 31, 2010, the IRS completed its field examination of the Company’s 2005 and
2006 tax returns and issued notices of proposed adjustment. The Company reached an agreement with the IRS in
connection with several of the adjustments and adjusted its reserves accordingly. There are other proposed
adjustments, including an intercompany transfer pricing matter which could have a significant impact on its tax
liability in future years if not resolved favorably. The Company has not agreed to these other proposed
adjustments and is contesting them through the administrative process. In the third quarter of 2010, the Company
completed a Fast Track Settlement process with the IRS related to certain capital losses that became available for
use. In the fourth quarter of 2010, the Company reached a formal agreement through a pre-filing agreement with
the IRS to treat certain bad debt expense as a deductible business expense on the 2009 federal income tax return.
The Company has recognized a benefit in 2010 for both capital loss and bad debt expense as a result of the
resolution with the IRS.
During the year ended December 31, 2010, the IRS commenced an examination of the Company’s 2007 and
2008 tax returns. The Company is also under audit by the California Franchise Tax Board for its 2005 and 2006
tax returns. The Company believes its existing reserves for all tax matters are adequate. The Company also filed
with the IRS amended federal tax returns for its fiscal years 2000 to 2008, to elect foreign tax credits for foreign
taxes paid versus the previous election to deduct foreign taxes from taxable income, reducing income taxes
payable by $102 million. The Company’s tax provisions for all years had been computed on the basis of foreign
tax credits, and differences between book and tax treatment were charged to additional paid-in capital due to the
interaction of stock option deductions and the foreign tax credit computations. Accordingly, the $102 million was
recorded as a credit to additional paid-in capital with a corresponding reduction of $49 million in current year
income taxes payable and a $53 million receivable from the IRS for taxes paid in prior years.
The Company is in various stages of the examination and appeals process in connection with all of its tax audits
worldwide and it is difficult to determine when these examinations will be settled. It is reasonably possible that
over the next twelve-month period the Company may experience an increase or decrease in its unrecognized tax
benefits. It is not possible to determine either the magnitude or the range of any increase or decrease at this time.
Note 10 S TOCKHOLDERS ’E QUITY
Stockholder Rights Plan. The Company adopted a stockholder rights plan and initially declared a dividend
distribution of one right for each outstanding share of common stock to stockholders of record as of March 20,
2001. As a result of the Company’s two-for-one stock split effective May 11, 2004, each share of common stock
is now associated with one-half of one right. Each right entitles the holder to purchase one unit consisting of one
one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock for $250 per unit.
Under certain circumstances, if a person or group acquires 15 percent or more of the Company’s outstanding
common stock, holders of the rights (other than the person or group triggering their exercise) will be able to
purchase, in exchange for the $250 exercise price, shares of its common stock or of any company into which the
Company is merged having a value of $500. Because the rights may substantially dilute the stock ownership of a
person or group attempting to take over the Company without the approval of the Company’s Board of Directors
(the “Board”), the Company’s rights plan could make it more difficult for a third-party to acquire the Company
(or a significant percentage of its outstanding capital stock) without first negotiating with the Board regarding
that acquisition. The rights plan expires on March 1, 2011, and the Board does not currently intend to renew the
plan.
In addition, the Board has the authority to issue up to 10 million shares of Preferred Stock (of which 2 million
shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights,
preferences, privileges, and restrictions, including voting rights, of those shares without any further vote or action
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