Yahoo 2012 Annual Report Download - page 88

the Company uses the date of initial possession to begin amortization. Lease renewal periods are considered on a
lease-by-lease basis and are generally not included in the period of straight-line recognition. For each of the years
ended December 31, 2010, 2011 and 2012, the Company expensed $5 million of interest, which approximates the
cash payments made for interest. As of December 31, 2011 and 2012, the Company had net lease commitments
included in capital lease and other long-term liabilities in the consolidated balance sheets of $41 million and $37
million, respectively.
Income Taxes. Deferred income taxes are determined based on the differences between the financial reporting
and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. The
Company records a valuation allowance against particular deferred income tax assets if it is more likely than not
that those assets will not be realized. The provision for income taxes comprises the Company’s current tax
liability and change in deferred income tax assets and liabilities.
Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its
provision for income taxes. The Company establishes reserves for tax-related uncertainties based on estimates of
whether, and the extent to which, additional taxes will be due. These reserves are established when the Company
believes that certain positions might be challenged despite its belief that its tax return positions are in accordance
with applicable tax laws. The Company adjusts these reserves in light of changing facts and circumstances, such
as the closing of a tax audit, new tax legislation, or the change of an estimate. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such differences will affect the provision for
income taxes in the period in which such determination is made. The provision for income taxes includes the
effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net
interest and penalties. Income taxes paid were $232 million, $96 million, and $2.3 billion in the years ended
December 31, 2010, 2011, and 2012, respectively. Interest paid was not material in any of the years presented.
See Note 15—“Income Taxes” for additional information.
Revenue Recognition. Revenue is generated from several offerings including the display of graphical
advertisements (“display advertising”), the placement of links to advertisers’ Websites (“search advertising”),
and other sources. For revenue arrangements with multiple deliverables, the consideration is allocated based on
the relative selling price for each deliverable. The selling price for each arrangement deliverable can be
established based on vendor specific objective evidence (“VSOE”) or third-party evidence (“TPE”) if VSOE is
not available. An estimate of selling price (“ESP”) is used if neither VSOE nor TPE is available.
The Company recognizes revenue from display advertising on Yahoo! Properties and Affiliate sites as
impressions are delivered. Impressions are delivered when a sold advertisement appears in pages viewed by
users. Arrangements for these services generally have terms of up to one year and in some cases the terms may
be up to three years. For display advertising on Affiliate sites, the Company pays Affiliates for the revenue
generated from the display of these advertisements on the Affiliate sites. Traffic acquisition costs (“TAC”) are
payments made to third-party entities that have integrated the Company’s advertising offerings into their
Websites or other offerings and payments made to companies that direct consumer and business traffic to Yahoo!
Properties. The display revenue derived from these arrangements that involve traffic supplied by Affiliates is
reported gross of the TAC paid to Affiliates as the Company is the primary obligor to the advertisers who are the
customers of the display advertising service.
From time-to-time, the Company may offer customized display advertising solutions to advertisers. These
customized display advertising solutions combine the Company’s standard display advertising with customized
content, customer insights, and campaign analysis. Due to the unique nature of these products, the Company may
not be able to establish selling prices based on historical stand-alone sales or third-party evidence; therefore, the
Company may use its best estimate to establish selling prices. The Company establishes best estimates within a
range of selling prices considering multiple factors including, but not limited to, class of advertiser, size of
transaction, seasonality, margin objectives, observed pricing trends, available online inventory, industry pricing
strategies, and market conditions. The Company believes the use of the best estimates of selling price allows
revenue recognition in a manner consistent with the underlying economics of the transaction.
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