Yahoo 2014 Annual Report Download - page 101

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, 2012, 2013 and 2014, the
Company expensed $5 million of interest, which approximates the cash payments made for interest.
As of December 31, 2013 and 2014, the Company had net lease obligations included in capital lease
and other long-term liabilities on the consolidated balance sheets of $44 million and $47 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 $2.3 billion, $208 million, and $90 million in the years ended December 31,
2012, 2013, and 2014, 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 offerings, which include clicks on text-based links
to advertisers’ Websites that appear primarily on search results pages (“search advertising”), the
display of graphical and non-graphical advertisements (“display 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 is used if neither VSOE nor TPE is available.
The Company recognizes revenue from search advertising on Yahoo Properties and Affiliate sites.
Search revenue is recognized based on Paid Clicks. A Paid Click occurs when an end-user clicks on a
sponsored listing on Yahoo Properties and Affiliate sites for which an advertiser pays on a per click
basis. The Company’s Search Agreement with Microsoft provides for Microsoft to be the exclusive
algorithmic and paid search services provider on Yahoo Properties on desktop computers and non-
exclusive provider of such services on Affiliate sites and for mobile devices. In transitioned markets,
the Company is entitled to receive 88 percent of the revenue generated from Microsoft’s services on
Yahoo Properties (the “Revenue Share Rate”) and the Company is also entitled to receive 88 percent
of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of
revenue. As the Company is not the primary obligor in the arrangement with the advertisers and
publishers, the amounts paid to Affiliates are recorded as a reduction of revenue. See Note 19—
“Search Agreement with Microsoft Corporation” for a description of the Search Agreement with
Microsoft.
97