Yahoo 2012 Annual Report Download - page 90

enhancements to, and maintenance and operation of Yahoo! Properties, advertising products, technology
platforms, and infrastructure. Depreciation expense, third-party technology and development 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 advertising are recorded as expense as advertising space or airtime is used. All other advertising costs
are expensed as incurred. Advertising expense totaled approximately $237 million, $148 million, and $103
million for 2010, 2011, and 2012, respectively.
Restructuring Charges. The Company has developed and implemented restructuring initiatives to improve
efficiencies across the organization, reduce operating expenses, and better align its resources to market
conditions. As a result of these plans, the Company has recorded restructuring charges comprised principally of
employee severance and associated termination costs related to the reduction of its workforce, office closures,
losses on subleases, and contract termination costs. Liabilities for costs associated with an exit or disposal
activity are recognized when the liability is incurred, as opposed to when management commits to an exit plan.
In addition, (i) liabilities associated with exit and disposal activities are measured at fair value; (ii) one-time
termination benefits are 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 are recognized when the entity terminates the contract in
accordance with the contract terms. In addition, a portion of the Company’s restructuring costs related to
international employees whose termination benefits are recognized when the amount of such termination benefits
becomes estimable and payment is probable.
These restructuring initiatives require management to make estimates in several areas including: (i) expenses for
severance and other employee separation costs; (ii) realizable values of assets made redundant, obsolete, or
excessive; and (iii) the ability to generate sublease income and to terminate lease obligations at the estimated
amounts.
Stock-Based Compensation Expense. 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 are valued based on the grant date fair value of these awards;
the Company records stock-based compensation expense on a straight-line basis over the requisite service period,
generally one to four years.
Calculating stock-based compensation expense related to stock options requires the input of highly subjective
assumptions, including the expected term of the stock options, stock price volatility, and the pre-vesting
forfeiture rate of stock awards. The Company estimates the expected life of options granted based on historical
exercise patterns, which the Company believes are representative of future behavior. The Company estimates the
volatility of its common stock on the date of grant based on the implied volatility of publicly traded options on its
common stock, with a term of one year or greater. The Company believes that implied volatility calculated based
on actively traded options on its common stock is a better indicator of expected volatility and future stock price
trends than historical volatility. The assumptions used in calculating the fair value of stock-based awards
represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and the Company uses different assumptions, the
Company’s stock-based compensation expense could be materially different in the future. In addition, the
Company is required to estimate the expected pre-vesting award forfeiture rate, as well as the probability that
performance conditions that affect the vesting of certain awards will be achieved, and only recognizes expense
for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of the
Company’s stock-based awards that are granted and cancelled before vesting. See Note 13—“Employee
Benefits” for additional information.
The Company uses the “with and without” approach in determining the order in which tax attributes are utilized.
As a result, the Company only recognizes a tax benefit from stock-based awards in additional paid-in capital if an
76