Yahoo 2011 Annual Report Download - page 77

impairment charges equal to the amount that the carrying value of an equity security exceeds the estimated fair
value of such security as of the evaluation date. In computing realized gains and losses on available-for-sale
securities, the Company determines cost based on amounts paid, including direct costs such as commissions to
acquire the security, using the specific identification method. During the year ended December 31, 2009, the
Company recognized a gain of $42 million, net of tax, in connection with the sale of its investment in Gmarket.
During the years ended December 31, 2010 and 2011, gross realized gains and losses on available-for-sale debt
and equity securities were not material.
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, accounts receivable, and
derivative financial instruments. 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 U.S. and
foreign government, agency, municipal and highly rated corporate debt obligations and money market funds.
Accounts receivable are typically unsecured and are derived from revenue 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, 2010 and 2011, 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 revenue for 2009, 2010, or 2011. Revenue under the Search
Agreement represented more than 10 percent of the Company’s revenue during 2011.
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 $90 million, $110 million, and $192 million during 2009,
2010, and 2011, respectively. The estimated useful life of costs capitalized is evaluated for each specific project
and ranges from one to three years. During 2009, 2010, and 2011, the amortization of capitalized costs totaled
approximately $128 million, $108 million, and $114 million, respectively. Capitalized internal use software and
Website development costs are included in property and equipment, net. Included in the capitalized amounts
above are $14 million, $16 million, and $22 million, respectively, of stock-based compensation expense in the
years ended December 31, 2009, 2010, and 2011.
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
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