Yahoo 2005 Annual Report Download - page 58

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certain transactions that contain non-standard business terms and conditions. In addition, we may enter
into certain sales transactions that involve multiple element arrangements (arrangements with more than
one deliverable). We also enter into arrangements 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) whether 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 arrangements 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 tax planning 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. 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, determining 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 5 — “Goodwill” in the consolidated financial statements for additional information. Based on
our 2005 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 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 our other intangible assets which
could trigger impairment.
Investments in Equity Interests. We account for investments in entities in which we can exercise
significant influence but do not own a majority equity interest or otherwise control using the equity
method. In accounting for these investments we record our proportionate share of these companies’ net
income or loss, one quarter in arrears.