Yahoo 2010 Annual Report Download - page 73

determines fair value based on estimated future cash flows of each reporting unit discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate
of return an outside investor would expect to earn. The cash flow projections for each reporting unit are based on
a five-year forecast of cash flows, derived from the most recent annual financial forecast, and a terminal value
based on the Perpetuity Growth Model. The sum of the fair values of the reporting units is reconciled to the
Company’s market capitalization adjusted for an estimated control premium. If the carrying value of the
reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed by comparing
the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is
recognized for the excess of the carrying value of goodwill over its implied fair value. The Company conducted
its annual goodwill impairment test as of October 31, 2010 and determined that the fair values of its reporting
units exceeded their carrying values and therefore goodwill in those reporting units was not impaired. See Note 5
—“Goodwill” for additional information.
Intangible Assets. Intangible assets are carried at cost and amortized over their estimated useful lives, generally
on a straight-line basis over one to eight years. The Company reviews identifiable amortizable intangible assets
to be held and used 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 cash flows resulting from use of the asset and its eventual disposition. Measurement of
any impairment loss is based on the excess of the carrying value of the asset over its fair value.
Investments in Equity Interests. Investments in the common stock of entities in which the Company can exercise
significant influence but does not own a majority equity interest or otherwise control are accounted for using the
equity method and are included as investments in equity interests on the consolidated balance sheets. The
Company records its share of the results of these companies one quarter in arrears within earnings in equity
interests on the consolidated statements of income. The Company reviews its investments for other-than-
temporary impairment whenever events or changes in business circumstances indicate that the carrying value of
the investment may not be fully recoverable. Investments identified as having an indication of impairment are
subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires
estimating the fair value of the investment. The determination of fair value of the investment involves
considering factors such as the stock prices of public companies in which the Company has an equity investment,
current economic and market conditions, the operating performance of the companies including current earnings
trends and forecasted cash flows, and other company and industry specific information.
Foreign Currency. The functional currency of the Company’s international subsidiaries is evaluated on a
case-by-case basis and is often the local currency. The financial statements of these subsidiaries are translated
into U.S. dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for
equity, and average rates of exchange for the period for revenue and expenses. Translation gains (losses) are
recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. In addition,
the Company records translation gains (losses) related to its foreign equity method investments in accumulated
other comprehensive income (loss). The Company records foreign currency transaction gains and losses, realized
and unrealized in other income, net in the consolidated statements of income. The Company recorded $25 million
and $1 million of net losses in 2008 and 2009, respectively, and $13 million of net gains in 2010.
Note 2 B ASIC AND D ILUTED N ET I NCOME A TTRIBUTABLE TO Y AHOO !C OMMON S TOCKHOLDERS P ER
S HARE
Basic and diluted net income attributable to Yahoo! common stockholders per share is computed using the
weighted average number of common shares outstanding during the period, excluding net income attributable to
participating securities (restricted stock awards granted under the Company’s 1995 Stock Plan and restricted
stock units granted under the 1996 Directors’ Stock Plan (the “Directors’ Plan”)). Diluted net income per share is
computed using the weighted average number of common shares and, if dilutive, potential common shares
outstanding during the period. Potential common shares are calculated using the treasury stock method and
consist of unvested restricted stock and shares underlying unvested restricted stock units, the incremental
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