Yahoo 2012 Annual Report Download - page 64

Interest and investment income consists of income earned from cash in bank accounts, investments made in
marketable debt securities, money market funds, and dividend income on the Alibaba Group Preference Shares.
In February 2010, we sold Zimbra, Inc., for net proceeds of $100 million and recorded a pre-tax gain of $66
million. In August 2010, we sold HotJobs for net proceeds of $225 million and recorded a pre-tax gain of $186
million. In September 2012, we recorded a pre-tax gain of approximately $4.6 billion related to the sale of
Alibaba Group Shares. See Note 8—“Investments in Equity Interests” for additional information.
Other consists of gains and losses from sales or impairments of marketable debt securities and/or investments in
privately held companies, foreign exchange gains and losses due to re-measurement of monetary assets and
liabilities denominated in non-functional currencies, foreign exchange gains and losses on balance sheet hedges,
and other non-operating items.
Other income, net may fluctuate in future periods due to changes in our average investment balances, changes in
interest and foreign exchange rates, changes in the fair value of foreign currency forward contracts, realized gains
and losses on investments, and impairments of investments.
Income Taxes. The provision for income taxes for the year ended December 31, 2012 differs from the amount
computed by applying the federal statutory income tax rate to income before provision for income taxes and
earnings in equity interests as follows (dollars in thousands):
Years Ended December 31,
2010 (*) 2011 (*) 2012 (*)
Income tax at the U.S. federal statutory rate of
35 percent ................................. $374,638 35% $289,630 35% $1,824,973 35%
State income taxes, net of federal benefit ........... 54,268 5% 4,627 1% 237,637 5%
Change in valuation allowance ................... (1,315) — (5,975) (1)% (82) —
Stock-based compensation expense ............... 4,404 — 18,213 2% 17,703 —
Research tax credits ........................... (10,345) (1)% (10,499) (1)% — —
Effect of non-U.S. operations .................... (17,344) (2)% (42,806) (5)% (135,753) (3)%
Resolution with tax authorities ................... (159,168) (14)% (14,685) (2)% (4,711) —
Tax gain in excess of book gain from sales of Zimbra,
Inc. and HotJobs due to basis differences ......... 23,184 2% — — — —
Tax restructuring .............................. (43,361) (4)% — — — —
Other ....................................... (3,438) — 3,262 — 276 —
Provision for income taxes ...................... $221,523 21% $241,767 29% $1,940,043 37%
(*) Percent of income before income taxes and earnings in equity interests.
Significant variances year over year as shown above are further explained as follows:
• In 2012, we made a one-time distribution of foreign earnings resulting in an overall net benefit of
approximately $117 million. The benefit is primarily due to excess foreign tax credits. Of the $117 million,
$102 million is included above within “effect of non-U.S. operations.”
• State taxes were higher in 2010 due to a reduction of deferred tax assets associated with an effective tax rate
reduction in California that started in 2011.
• In 2010, we had a favorable resolution of certain issues in an IRS examination of our 2005 and 2006 U.S.
federal income tax returns resulting in a reduction of reserves for tax uncertainties and the availability of
capital loss carryforwards to offset the tax on the gain from the sales of Zimbra, Inc. and HotJobs.
• During 2010, in connection with tax restructuring activities, we reached a formal agreement with the IRS
through a pre-filing agreement to treat certain intercompany bad debts as deductible business expenses on the
2009 federal income tax return.
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