Yahoo 2012 Annual Report Download - page 87

During 2010, 2011, and 2012, the amortization of capitalized costs totaled approximately $108 million, $114
million, and $142 million, respectively. Capitalized software and labor costs are included in property and
equipment, net. Included in the capitalized amounts above are $16 million, $22 million, and $24 million,
respectively, of stock-based compensation expense in the years ended December 31, 2010, 2011, and 2012.
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 the operating segments level. 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 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. 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, 2012 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.
Operating and Capital Leases. The Company leases office space and data centers under operating leases and
certain data center equipment under a capital lease agreement with original lease periods up to 12 years. Assets
acquired under capital leases are amortized over the shorter of the remaining lease term or its estimated useful
life which is generally 10 to 15 years. Certain of the lease agreements contain rent holidays and rent escalation
provisions. For purposes of recognizing these lease incentives on a straight-line basis over the term of the lease,
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