Yahoo 2013 Annual Report Download - page 86

Company will be required to sell the security before recovery of the entire amortized cost basis. In those
instances, an impairment charge equal to the difference between the fair value and the amortized cost basis is
recognized in earnings. Regardless of the Company’s intent or requirement to sell a debt security, an impairment
is considered other-than-temporary if the Company does not expect to recover the entire amortized cost basis; in
those instances, a credit loss equal to the difference between the present value of the cash flows expected to be
collected based on credit risk and the amortized cost basis of the debt security is recognized in earnings. The
Company has no current requirement or intent to sell a material portion of debt securities as of December 31,
2013. The Company expects to recover up to (or beyond) the initial cost of investment for securities held. 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 years ended December 31, 2011, 2012 and 2013, gross realized gains and losses on available-
for-sale debt and equity securities were not material.
Allowance for Doubtful Accounts. The Company records its allowance for doubtful accounts based upon its
assessment of various factors. The Company considers historical experience, the age of the accounts receivable
balances, the credit quality of its customers, current economic conditions, and other factors that may affect
customers’ ability to pay to determine the level of allowance required.
Derivative Financial Instruments. The Company uses derivative financial instruments, primarily foreign
currency forward contracts, to mitigate certain foreign currency exposures. The Company hedges, on an after-tax
basis, a portion of its net investment in Yahoo Japan. The Company has designated these foreign currency
forward contracts as net investment hedges, which are accounted for in accordance with ASC 815 “Derivatives
and Hedging” (“ASC 815”). The effective portion of changes in fair value is recorded in accumulated other
comprehensive income on the Company’s consolidated balance sheet and any ineffective portion is recorded in
other income, net on the Company’s consolidated statements of income. The Company expects the net
investment hedges to be effective, on an after-tax basis, as described in ASC 815 and effectiveness will be
assessed each quarter. Should any portion of the net investment hedge become ineffective, the ineffective portion
will be reclassified to other income, net on the Company’s consolidated statements of income. The fair values of
the net investment hedges are determined using quoted observable inputs. Gains and losses reported in
accumulated other comprehensive income will not be reclassified into earnings until a sale of the Company’s
underlying investment.
For derivatives designated as cash flow hedges, the effective portion of the unrealized gains or losses on these
forward contracts is recorded in accumulated other comprehensive income on the Company’s consolidated
balance sheets and reclassified into revenue on the consolidated statements of income when the underlying
hedged revenue is recognized. If the cash flow hedges were to become ineffective, the ineffective portion would
be immediately recorded in other income, net on the Company’s consolidated statements of income.
The Company hedges certain of its net recognized foreign currency assets and liabilities with foreign exchange
forward contracts to reduce the risk that its earnings and cash flows will be adversely affected by changes in
foreign currency exchange rates. These balance sheet hedges are used to partially offset the foreign currency
exchange gains and losses generated by the re-measurement of certain assets and liabilities denominated in non-
functional currency. Changes in the fair value of these derivatives are recorded in other income, net on the
Company’s consolidated statements of income. The fair values of the balance sheet hedges are determined using
quoted observable inputs.
In October 2013, the Company began hedging a portion of the forecasted revenue of certain international
subsidiaries whose functional currencies are not the U.S dollar. This program attempts to reduce the risk that the
Company’s revenue denominated in these currencies will be adversely affected by foreign currency exchange
rate fluctuations. These derivatives are economic hedges and as such do not qualify for hedge accounting.
Changes in the fair value of these derivatives are recorded as a component of revenue in the Company’s
consolidated statements of income.
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