Yahoo 2013 Annual Report Download - page 88

For the year ended December 31, 2013, the Company sold certain patents and recorded gains on sales of patents
of approximately $80 million. The gains on sales of patents were primarily related to a patent sale agreement
with a wholly-owned affiliate of Alibaba Group entered into during the fourth quarter of 2013 for $70 million.
Investments in Equity Interests. Investments in the common stock of entities in which the Company can exercise
significant influence but does not own a majority equity interest or otherwise control are accounted for using the
equity method and are included as investments in equity interests on the consolidated balance sheets. The
Company records its share of the results of these companies one quarter in arrears within earnings in equity
interests on the consolidated statements of income. The Company reviews its investments for other-than-
temporary impairment whenever events or changes in business circumstances indicate that the carrying value of
the investment may not be fully recoverable. Investments identified as having an indication of impairment are
subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires
estimating the fair value of the investment. The determination of fair value of the investment involves
considering factors such as the stock prices of public companies in which the Company has an equity investment,
current economic and market conditions, the operating performance of the companies including current earnings
trends and forecasted cash flows, and other company and industry specific information.
Operating and Capital Leases. The Company leases office space and data centers under operating leases and
certain data center equipment under a capital lease agreement with original lease periods up to 12 years. Assets
acquired under capital leases are amortized over the remaining lease term. Certain of the lease agreements
contain rent holidays and rent escalation provisions. For purposes of recognizing these lease incentives on a
straight-line basis over the term of the lease, the Company uses the date that the Company has the right to control
the asset 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, 2011, 2012 and
2013, the Company expensed $5 million of interest, which approximates the cash payments made for interest. As
of December 31, 2012 and 2013, the Company had net lease obligations included in capital lease and other long-
term liabilities in the consolidated balance sheets of $37 million and $44 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 liabilities for tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes will be due. These liabilities 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 liabilities in light of changing facts and
circumstances, such as the closing of a tax audit, new tax legislation, developments in case law or interactions
with the tax authorities. 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 changes to liabilities for tax-related uncertainties that
are considered appropriate, as well as the related net interest and penalties. Income taxes paid, net of refunds
received, were $96 million, $2.3 billion, and $208 million in the years ended December 31, 2011, 2012, and
2013, respectively. Interest paid was not material in any of the years presented. See Note 16—“Income Taxes”
for additional information.
Revenue Recognition. Revenue is generated from several offerings including the display of graphical and non-
graphical advertisements (“display advertising”), clicks on text-based links to advertisers’ Websites that appear
primarily on search results pages (“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
86