Yahoo 2009 Annual Report Download - page 76

Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
Concentration of Risk. Financial instruments that potentially subject the Company to significant concentration of
credit risk consist primarily of cash, cash equivalents, marketable debt securities, and accounts receivable. The
primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. A
large portion of the Company’s cash is managed by external managers within the guidelines of the Company’s
investment policy. The Company’s investment policy addresses the level of credit exposure by limiting the
concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To
manage the risk exposure, the Company maintains its portfolio of cash and cash equivalents and short-term and
long-term investments in a variety of fixed income securities, including government, municipal and highly rated
corporate debt obligations and money market funds. Accounts receivable are typically unsecured and are derived
from revenues earned from customers. 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, 2008 and 2009, no one customer accounted for 10 percent or more of the
accounts receivable balance and no one customer accounted for 10 percent or more of the Company’s revenues
for 2007, 2008, or 2009.
Property and Equipment. Buildings are stated at cost and depreciated using the straight-line method over the
estimated useful lives of 25 years. Leasehold improvements are amortized over the lesser of their expected useful
lives and the remaining lease term. Computers and equipment and furniture and fixtures are stated at cost and
depreciated using the straight-line method over the estimated useful lives of the assets, generally two to five years.
Property and equipment to be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be recoverable. Determination of
recoverability is based on the lowest level of identifiable estimated undiscounted future cash flows resulting from
the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets that
management expects to hold and use is based on the excess of the carrying value of the asset over its fair value.
No impairments of such assets were identified during any of the periods presented.
Internal Use Software and Website Development Costs. The Company capitalized certain internal use software
and Website development costs totaling approximately $111 million, $149 million, and $90 million during 2007,
2008, and 2009, respectively. The estimated useful life of costs capitalized is evaluated for each specific project
and ranges from one to three years. During 2007, 2008, and 2009, the amortization of capitalized costs totaled
approximately $48 million, $81 million, and $128 million, respectively. Capitalized internal use software and
Website development costs are included in property and equipment, net. Included in the capitalized amounts
above are $16 million, $22 million, and $14 million, respectively, of stock-based compensation expense in the
years ended December 31, 2007, 2008, and 2009.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and
intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment on
an annual basis and between annual tests in certain circumstances. The performance of the goodwill impairment
test involves a two-step process. The first step involves comparing the fair value of the Company’s reporting
units to their carrying values, including goodwill. The Company’s reporting units are based on geography, either
at the operating segment level or one level below operating segments. The fair values of the reporting units are
estimated using an average of a market approach and an income approach as this combination is deemed to be the
most indicative of the Company’s fair value in an orderly transaction between market participants. In addition,
the fair values estimated under these two approaches are validated against each other to ensure consistency.
Under the market approach, the Company utilizes publicly-traded comparable company information, specific to
the regions in which the reporting units operate, to determine revenue and earnings multiples that are used to
value the reporting units adjusted for an estimated control premium. Under the income approach, the Company
determines fair value based on estimated future cash flows of each reporting unit discounted by an estimated
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