Yahoo 2004 Annual Report Download - page 43

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Other Income, Net. Other income, net was as follows (in thousands):
Years Ended December 31,
2002 2003 2004
Interest and investment income $63,200 $47,202 $ 60,830
Investment gains (losses), net 2,189 (1,223) 415,125
Other 3,898 1,527 20,488
Total other income, net $69,287 $47,506 $496,443
Other income, net increased in 2004 primarily due to the sale of approximately four million shares of an investment in a
publicly traded company which resulted in a gain of approximately $413 million, net of selling costs which is included
in investment gains (losses), net. In addition, interest and investment income earned in 2004 was higher than 2003 as a
result of larger invested balances. The remainder of the increase was due to $6 million of foreign exchange gains and
other activities. In 2003, other income, net decreased approximately $22 million compared to 2002, primarily as a result
of decreased interest and investment income, due to reduced interest rates on investments. Average interest rates were
approximately 2.1 percent, 2.4 percent and 3.9 percent in 2004, 2003 and 2002, respectively.
Other income, net in future periods may fluctuate as a result of changes in our average investment balances held, changes
in interest and foreign exchange rates, sales of investments, and impairments of investments.
Income Taxes. The provision for income taxes for 2004, 2003 and 2002 differs from the amount computed by applying the
statutory federal rate principally due to foreign losses for which no tax benefit was provided, tax credits, decreased
valuation allowance related to previous impairment write-downs of equity investments not benefited, and decreased
valuation allowance related to utilization of previously realized capital losses not benefited.
Effective this year, a new subtotal is being presented in the consolidated statement of operations: Income before income
taxes, earnings in equity interests, minority interests and cumulative effect of accounting change. Earnings in equity
interests and minority interests in operations of consolidated subsidiaries are now presented below provision for income
taxes. In accordance with generally accepted accounting principles, these items have consistently been presented net of
income taxes. This presentation has also been adopted for prior periods. As a result of this change in presentation, the
effective tax rate changed in prior periods.
The increase in the provision for income taxes in 2004 from 2003 of approximately $291 million was primarily a result
of increases in federal and state income taxes, driven by higher pretax income in 2004 compared to 2003. This increase
included an approximate $41 million valuation allowance decrease for 2004 compared to a $9 million valuation allow-
ance increase for 2003. The change in valuation allowance from 2003 to 2004 was driven primarily by our ability to
utilize previously realized capital losses against the capital gain we realized on the sale of an investment during the year.
The effective tax rate for 2004 was 37 percent compared to 43 percent in 2003. The increase in the provision for
income taxes in 2003 from 2002 of approximately $76 million was primarily a result of increases in federal and state
income taxes, driven by higher pretax income in 2003 compared to 2002. This increase included an approximate
$9 million valuation allowance increase for 2003 compared to $7 million for 2002. The change in valuation allowance
from 2002 to 2003 was driven by an increase of foreign losses for which no tax benefit was provided for 2003 as
compared to 2002. The effective tax rate for 2003 was 43 percent compared to 45 percent in 2002.
On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the ‘‘Act’’). Among other provi-
sions, the Act includes a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad. We
currently do not intend to repatriate foreign earnings under the Act. It is not anticipated that the other provisions of the
Act will have a material impact on our effective tax rate.
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