Yahoo 2004 Annual Report Download - page 47

one deliverable) that may include placement on specific properties and content integration. We also enter into arrange-
ments to purchase goods and/or services from certain customers. As a result, significant contract interpretation is
sometimes required to determine the appropriate accounting for these transactions including: (1) if an arrangement exists;
(2) how the arrangement consideration should be allocated among potential multiple elements; (3) when to recognize
revenue on the deliverables; (4) whether all elements of the arrangement have been delivered; (5) whether the arrange-
ments should be reported gross as a principal versus net as an agent; and (6) whether we receive a separately identifiable
benefit from purchase arrangements with our customers for which we can reasonably estimate fair value. In addition, our
revenue recognition policy requires an assessment as to whether collection is reasonably assured, which inherently requires
us to evaluate the creditworthiness of our customers. Changes in judgments on these assumptions and estimates could
materially impact the timing or amount of revenue recognition.
Deferred Income Tax Asset Valuation Allowance. We record a valuation allowance to reduce our deferred income tax assets to the
amount that is more likely than not to be realized. In evaluating our ability to recover our deferred income tax assets we
consider all available positive and negative evidence, including our operating results, ongoing prudent and feasible tax
planning strategies and forecasts of future taxable income on a jurisdiction by jurisdiction basis. In the event we were to
determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded
amount, an adjustment to the valuation allowance would likely increase stockholders’ equity as substantially all of our net
operating losses result from employee stock option deductions.
Goodwill and Other Intangible Assets. Our long-lived assets include goodwill and other intangible assets and as of December 31,
2004 had a net balance of $3 billion. Goodwill is tested for impairment at the reporting unit level (operating segment or
one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application
of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and
liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, deter-
mining appropriate discount rates, growth rates and other assumptions. Changes in these estimates and assumptions
could materially affect the determination of fair value for each reporting unit which could trigger impairment. See
Note 4 – ‘‘Goodwill’’ in the consolidated financial statements for additional information. Based on our 2004 impairment
test, there would have to be a significant unfavorable change to our assumptions used in such calculations for an
impairment to exist.
We amortize other intangible assets over their estimated economic useful lives. We must record an impairment charge on
these assets when we determine that their carrying value may not be recoverable. The carrying value is not recoverable if
it exceeds the undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Based on
the existence of one or more indicators of impairment, we measure any impairment of intangible assets based on a
projected discounted cash flow method using a discount rate determined by our management to be commensurate with
the risk inherent in our business model. Our estimates of future cash flows attributable to our other intangible assets
require significant judgment based on our historical and anticipated results and are subject to many factors. Different
assumptions and judgments could materially affect the calculation of the fair value of the other intangible assets which
could trigger impairment.
41