Yahoo 2008 Annual Report Download - page 70

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Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to when
management commits to an exit plan. SFAS 146 also requires that: (i) liabilities associated with exit and disposal
activities be measured at fair value; (ii) one-time termination benefits be expensed at the date the entity notifies
the employee, unless the employee must provide future service, in which case the benefits are expensed ratably
over the future service period; and (iii) costs to terminate a contract before the end of its term be recognized
when the entity terminated the contract in accordance with the contract terms. In addition, a portion of the
Company’s restructuring costs related to international employees and have been accounted for in accordance
with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits, an Amendment of FASB Statements
No. 5 and 43 (“SFAS 112”) primarily as a result of statutory requirements.
These restructuring initiatives require management to make estimates in several areas including: (i) realizable
values of assets made redundant, obsolete or excess; (ii) expenses for severance and other employee separation
costs; and (iii) the ability to generate sublease income, and to terminate lease obligations at the estimated
amounts.
Allowance for Doubtful Accounts. The Company records its allowance for doubtful accounts based upon its
assessment of various factors. The Company considers historical experience, the age of the accounts receivable
balances, the credit quality of its customers, current economic conditions, and other factors that may affect
customers’ ability to pay to determine the level of allowance required.
Traffic Acquisition Costs (“TAC”). TAC consist of payments made to Affiliates and payments made to
companies that direct consumer and business traffic to Yahoo! Properties. The Company enters into agreements
of varying duration that involve TAC. There are generally three economic structures of the Affiliate agreements:
fixed payments based on a guaranteed minimum amount of traffic delivered, which often carry reciprocal
performance guarantees from the Affiliate; variable payments based on a percentage of the Company’s revenue
or based on a certain metric, such as the number of searches or paid clicks or a combination of the two. The
Company expenses, as cost of revenues, TAC under two different methods. Agreements with fixed payments are
expensed ratably over the term the fixed payment covers. Agreements based on a percentage of revenue, number
of paid introductions, number of searches, or other metrics are expensed based on the volume of the underlying
activity or revenue multiplied by the agreed-upon price or rate.
Product Development. Product development expenses consist primarily of compensation related expenses
(including stock-based compensation expense) incurred for the development of, minor enhancements to, and
maintenance of Yahoo! Properties, classification and organization of listings within Yahoo! Properties, research
and development, and Yahoo!’s technology platforms and infrastructure. Depreciation expense and other
operating costs are also included in product development.
Advertising Costs. Advertising production costs are recorded as expense the first time an advertisement appears.
Costs of communicating advertising are recorded as expense as advertising space or airtime is used. All other
advertising costs are expensed as incurred. Advertising expense totaled approximately $222 million, $220
million, and $190 million for 2006, 2007, and 2008, respectively.
Stock-Based Compensation Expense. Effective January 1, 2006, the Company adopted SFAS No. 123R (revised
2004), “Share-Based Payment” (“SFAS 123R”) using the modified prospective method and therefore have not
restated prior periods’ results. Under the fair value recognition provisions of SFAS 123R, the Company
recognizes stock-based compensation expense net of an estimated forfeiture rate and therefore only recognizes
compensation costs for those shares expected to vest over the service period of the award. Stock-based awards
granted prior to the adoption of SFAS 123R are expensed over the remaining portion of their service period.
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