Yahoo 2001 Annual Report Download - page 26

Fees and listings revenues consist of revenues generated from a variety of consumer and business
fee and listings-based services, including Small Business Services, Yahoo! Portal Solutions (formerly
known as Corporate Yahoo!), broadcasting live and on-demand events, and certain Search and Directory
services. With the exception of Yahoo! Portal Solutions, revenues are recognized in the month in which
the services are performed, provided that no significant Company obligations remain and collection of the
resulting receivable is reasonably assured. Revenues from Yahoo! Portal Solutions consist of software
license arrangements and are recognized upon delivery of the software in accordance with Statement of
Position No. 97-2, “Software Revenue Recognition” and Statement of Position 98-9, “Modification of SOP
No. 97-2 with Respect to Certain Transactions.” Platform and maintenance revenues for Yahoo! Portal
Solutions are recognized on a straight-line basis over the term of the contract. Software license revenues
have represented less than 10% of total net revenues for 2001, 2000, and 1999.
Transactions revenues include service fees for facilitating transactions through the Yahoo! network,
principally from our commerce properties. Transactions revenues are recognized upon notification from
the customer that qualifying transactions have occurred and collection of the resulting receivable is rea-
sonably assured.
Deferred revenue primarily comprises contractual billings in excess of recognized revenue and pay-
ments received in advance of revenue recognition.
Product Development. Product development costs consist primarily of payroll and related expenses
incurred for enhancements to and maintenance of the Company’s network, classification and organiza-
tion of listings within Yahoo! properties, research and development expenses, amortization of capitalized
Web site development costs, and other operating costs.
Internal Use Software Costs. The Company has capitalized certain internal use software and Web site
development costs totaling $8.6 million and $3.5 million during 2001 and 2000, respectively. The esti-
mated useful life of costs capitalized is evaluated for each specific project and ranges from one to three
years. During 2001, 2000, and 1999, the amortization of capitalized costs totaled $4.7 million, $1.7 mil-
lion, and $0.7 million.
Advertising Costs. Advertising production costs are recorded as expense the first time an advertisement
appears. All other advertising costs are expensed as incurred. Advertising expense totaled approximately
$113.5 million, $174.8 million, and $85.0 million for 2001, 2000, and 1999.
Benefit Plan. The Company maintains a 401(k) Profit Sharing Plan (the “Plan”) for its full-time employ-
ees. Each participant in the Plan may elect to contribute from 1% to 17% of his or her annual compensa-
tion to the Plan. The Company matches employee contributions at a rate of 25%. Employee contributions
are fully vested, whereas vesting in matching Company contributions occurs at a rate of 33.3% per year
of employment. During 2001, 2000, and 1999, the Company’s contributions amounted to $2.8 million,
$2.4 million, and $1.5 million.
Cash and Cash Equivalents, Short and Long-Term Investments. The Company invests its excess cash in
debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers. All highly
liquid investments with an original maturity of three months or less are considered cash equivalents.
Investments with maturities of less than twelve months from the balance sheet date are considered short-
term investments. Investments with maturities greater than twelve months from the balance sheet date
are considered long-term investments.
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The Company’s marketable securities are classified as available-for-sale and are reported at fair value,
with unrealized gains and losses, net of tax, recorded in stockholders’ equity. Realized gains or losses
and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported
in other income or loss. As of December 31, 2001 and 2000, the Company recorded unrealized gains on
its marketable debt and equity securities of approximately $32.1 million and $49.8 million net of tax of
$12.8 million and $19.9 million, respectively.
The Company has investments in equity instruments of privately-held companies. These investments
are included in other long-term assets and are generally accounted for under the cost method as the
Company does not have the ability to exercise significant influence over operations. The Company moni-
tors its investments for impairment by considering current factors including economic environment, mar-
ket conditions, operational performance, and other specific factors relating to the business underlying
the investment, and records reductions in carrying values when necessary.
The Company accounts for derivatives under Statement of Financial Accounting Standards No. 133
(“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” SFAS 133 establishes
methods of accounting for derivative financial instruments and hedging activities related to those instru-
ments as well as other hedging activities. During 2001, the Company recorded in other income, gains on
derivatives of approximately $4.6 million, related to equity instruments of other companies.
Concentration of Risk. Financial instruments that potentially subject the Company to significant concen-
tration of credit risk consist primarily of cash, cash equivalents, investments, and accounts receivable.
Substantially all of the Company’s cash, cash equivalents, and investments are managed by five financial
institutions. Accounts receivable are typically unsecured and are derived from revenues earned from cus-
tomers primarily located in the United States. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses. Historically, such losses have been within
management’s expectations. As of December 31, 2001 and 2000, no one customer accounted for 10%
or more of the accounts receivable balance.
Depreciation and Amortization. Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally two to five years. Goodwill
and other intangible assets are included in other assets and are carried at cost less accumulated amor-
tization, which is being provided on a straight-line basis over the economic lives of the respective assets,
generally three to ten years. The Company periodically evaluates the recoverability of its long-lived assets
based on expected undiscounted cash flows. In accordance with Statement of Financial Accounting
Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” goodwill of $16.3 million
acquired in acquisitions subsequent to July 1, 2001 is not subject to amortization. See Note 1 – “Recent
Accounting Pronouncements” for the effect of goodwill amortization in future periods.
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. A valuation allowance is provided for the amount of deferred tax assets that, based on avail-
able evidence, are not expected to be realized.
Stock-Based Compensation. The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and has provided the pro forma disclosure of the
effect on net income (loss) and net income (loss) per share as if the fair value based method had been
applied in measuring stock compensation expense.