Yahoo 1997 Annual Report Download - page 23

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Revenues from barter transactions are recognize d d u rin g t h e p e riod in w hich the a d ve rtisements a re d is p la ye d
in Yahoo! p rop e rties. Ba rter t ra n s a ct ion s a re recorded at the low er of estimated fair value of the g ood s or
services re ce ive d or t h e e s t im a t e d fa ir va lu e of the advertisements given. To d a t e , b a rter t ra n s a ct ion s h a ve
been less than 10% of net reve n u e s . Du rin g 1997, n o on e cu s t om e r a ccou n t e d for m ore t h a n 10% of n e t
revenues. During 1996, SOFTBANK, a 31% s h a re h old e r of t h e Com p a n y a t De ce m b e r 31, 1997, a n d it s re la t e d
companies a ccou n t e d for a p p roxim a t e ly 12% of n e t re ve n u e s . Du rin g 1995, a n ot h e r com p a n y a ccou n t e d for
approximately 11% of net revenues. De fe rre d re ve n u e is p rim a rily com p os e d of b illin g s in e xce s s of re cog -
nized re ve n u e re la t in g t o a d ve rtising con t ra ct s a n d p a ym e n t s re ce ive d p u rs u a n t t o s p on s ors h ip a d ve rtising
agreements in advance of reve n u e re cog n it ion .
Product De velopm ent. Cos t s in cu rre d in the classification and organization of listings w ithin Yahoo! p rop e r-
ties and the development of new products and enhanceme n t s t o e xis t in g p rod u ct s a re ch a rg e d t o e xp e n s e
as incurred. Statement of Financial Accounting Standa rd s (“SFAS”) No. 86, “Accou n t in g for t h e Cos t s of
Com p u t e r Softw are t o Be Sold , Le ased or Otherw ise Ma rketed,” requires capitalization of certain softw are
development costs subsequent to the esta b lis h m e n t of t e ch n olog ica l fe a s ib ilit y. Ba s e d u p on t h e Com p a n y’s
product development process, technological fea s ib ilit y is e s t a b lis h e d u p on com p le t ion of a w orkin g m od e l.
Cos t s in cu rre d b y the Company be t w een completion of the w orking model and the point a t w hich the
product is ready for general relea s e h a ve b e e n in s ig n ifica n t .
Adv e rtis in g Cos ts . Ad ve rtising p rod u ct ion cos t s a re re cord e d a s expense the first time an a d ve rtisement
appears. All other advertising costs are expense d a s in cu rre d . Th e Com p a n y d oe s n ot in cu r a n y d ire ct -
response advertising costs. Advert is in g e xp e nse totaled $10,168,000 for 1997, $3,939,000 for 1996, and
$130,000 for 1995.
Acquis ition of Four11 Corporation . On Oct ob e r 20, 1997, t h e Com p a n y con s u m m a t e d a n Ag re e m e n t a n d
Pla n of Reorganization w ith Fou r11 Corp ora t ion (“Fou r11”), a p riva t e ly-h e ld company, u p on w h ich Four11’s
shareholders exchanged all of the ir s h a re s on a n a s -if-con ve rted b a s is for s h a re s of t h e Com p a n y’s Com m on
Stock in a business combination w hich w a s a ccou n t e d for a s a pooling of interests. The consolidated finan-
cial statements for the three ye a rs e n d e d De ce m b e r 31, 1997 a n d t h e a ccom p a n yin g n ot e s re fle ct t h e
Com p a ny’s fin a n cia l position and the results of operations as if Four11 w as a w holly-ow n e d s u b s id ia ry of t h e
Com p a ny since inception. As separate companie s , Yahoo! accounte d for n e t re ve n u e s of $40,355,000 for t h e
nine months ended September 30, 1997, and $19,073,000 a n d $1,363,000 for t h e ye a rs e n d e d De ce m b e r 31,
1996 and 1995, respectively, a n d Fou r11 a ccou n t e d for n e t re ve n u e s of $1,951,000 for t h e n in e m on t h s
ended September 30, 1997, and $624,000 and $47,000 for the ye a rs e n d e d De ce m b e r 31, 1996 a n d 1995,
respectively. Du rin g t h e fou rth q u a rter of 1997, com b in e d Ya h oo!-Fou r11 n e t re ve n u e s w e re $25,105,000.
Yahoo! a ccou n t e d for net losses of $18,697,000 for the nine months ended Septe m b e r 30, 1997, a n d
$2,334,000 and $634,000 for the years ended Dece m b e r 31, 1996 a n d 1995, re s p e ct ive ly, a n d Fou r11
accounted for net losses of $2,914,000 for the nine months ende d Se p t e m b e r 30, 1997, a n d $1,951,000 a n d
$165,000 for the years ended Decembe r 31, 1996 a n d 1995, re s p e ct ive ly. Du rin g t h e fou rth q u a rter of 1997,
the combined Yahoo!-Fou r11 n e t loss w as $1,276,000.
Benefit Plan . Th e Com p a n y m a in t a in s a 401(k) Profit Sh a rin g Pla n (t h e “Pla n ”) for it s fu ll-t im e employees.
Each part icip a n t in t h e Pla n may elect to contribute from 1% to 17% of his or her annual compe n s a t ion t o t h e
Pla n. The Company matches employee contributions at a ra t e of 25%. Em p loye e con t rib u t ion s a re fu lly ve s t e d ,
w here a s ve sting in matching Company contributions occurs at a rate of 33.3% per yea r of e m p loym e n t .
During 1997 and 1996, the Company’s con t rib u t ion s a m ou n t e d t o $263,000 a n d $81,000, re s p e ct ive ly, a ll of
w hich w a s e xp e n s e d .
Cas h, Cas h Equiv ale nts , Short, an d Lon g -Te rm In v estm e nts . The Company invests its excess cash in debt
instruments of the U.S. Government and its agencie s , a n d in h ig h -q u a lit y corp ora t e is s u e rs . All h ig h ly liq u id
instruments w ith a n orig in a l m a turity of three months or less are considered ca s h e q u iva le n t s , t h os e w it h
original maturities greater than thre e m on t h s a n d cu rre n t m a t u rit ie s le s s t h a n t w e lve m on t h s from t h e b a la n ce
sheet date are considere d s h ort-term investme n t s , a n d t h os e w ith maturitie s g re a t e r t h a n t w e lve m on t h s
from the balance sheet date a re con s id e re d lon g -t e rm in ve s t m e n t s .
At December 31, 1997 and 1996, short, and long-term investments in marketa b le s e cu rit ie s w e re cla s s ifie d
as available-for-s a le a n d con s is t e d of 81% and 64% corporate debt securities, 8% a n d 26% d e b t s e cu rit ie s of
the U.S. Government and its agencies, 4% a n d 0% m u n icip a l d e b t s e cu rit ie s , a n d 7% a n d 10% fore ig n d e b t
securities, respectively. All lon g -t e rm in ve s t m e n t s in m a rke t a b le s e cu rit ie s m a t u re w it h in t w o ye a rs . At
December 31, 1997, the fair value of the in ve s t m e n t s a p p roxim a t e d cos t . Fa ir va lu e is d e t e rm in e d b a s e d u p on
the quoted market prices of the securitie s a s of t h e b a la n ce s h e e t d a t e .
At December 31, 1997, the Company had equity intere s t s in p riva t e ly-h e ld , in form a t ion t e ch n olog y com p a -
nies totaling $6,450,000. These investments are in clu d e d in ot h e r lon g -t e rm a s s e t s a n d a re a ccou n t e d for u n d e r
the cost method. The Company purchased these inve s t m e n t s a t or n e a r De ce m b e r 31, 1997, t h e re fore , t h e ir
carrying values approximate fair va lu e s . For t h e s e n on -q u ot e d in ve s t m e n t s , t h e Com p a n y’s p olicy is t o re g u la rly
review t h e a ssumptions underlying the operating performance a n d ca s h flow forecasts in a s s e s s in g t h e
carrying values. The Company identifies and re cord s im p a irm e n t los s e s on lon g -live d a s s e t s w h e n e ve n t s a n d
circumstances indicate that such assets might be im p a ire d . To d a t e , n o s u ch im p a irm e n t h a s b e e n re corded.
Con ce ntration of Cre dit Ris k. Financial instruments that potentially subje ct t h e Com p a n y t o s ig n ifica n t
concentration of credit risk consist primarily of cash, cash equiva le n t s , s h ort, and long-te rm in ve s t m e n t s , a n d
accounts receivable. Substantially a ll of t h e Com p a n y’s ca s h , ca s h e q u iva le nts, short , a n d lon g -t e rm in ve s t m e nts
are managed by three fina n cia l in s t it u t ion s . Accou n t s re ce iva b le a re t yp ica lly u n s e cu re d a n d a re d e rive d from
revenues earned from customers prima rily loca t e d in t h e Un it e d St a t e s . Th e Com p a n y p e rform s on g oin g
credit evaluations of its customers and mainta in s re s e rve s for p ot e n t ia l cre d it los s e s ; h is t orica lly, s u ch los s e s
have been immaterial a n d w ithin manageme n t ’s expectations. At December 31, 1997 and 1996, no one
customer accounted for 10% or more of the accounts rece iva b le b a la n ce . At De ce m b e r 31, 1995, t w o cu s t om e rs
accounted for a total of 21% of the accounts rece iva b le b a la n ce .
Prope rty an d Equipm ent. Prop e rty a n d e q u ip m e n t , in clu d in g le a sehold improvements, are stated a t cos t .
Depreciation is computed using the straight-line me t h od ove r t h e e s t im a t e d u s e fu l live s of t h e a s s e t s ,
generally tw o t o five years.