Yahoo 2013 Annual Report Download - page 90

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In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an
arrangement exists, the service is performed, and collectability of the related fee is reasonably assured. The
Company’s arrangements generally do not include a provision for cancellation, termination, or refunds that
would significantly impact revenue recognition.
The Company accounts for cash consideration given to customers, for which it does not receive a separately
identifiable benefit and cannot reasonably estimate fair value, as a reduction of revenue.
Current deferred revenue is comprised of contractual billings in excess of recognized revenue and payments
received in advance of revenue recognition. Long-term deferred revenue includes amounts received for which
revenue will not be earned within the next 12 months.
TAC. TAC consists of payments made to third-party entities that have integrated the Company’s advertising
offerings into their Websites or other offerings and payments made to companies that direct consumer and
business traffic to Yahoo Properties. The Company enters into agreements of varying duration that involve TAC.
There are generally two economic structures of the Affiliate agreements: fixed payments based on a guaranteed
minimum amount of traffic delivered, which often carry reciprocal performance guarantees from the Affiliate, or
variable payments based on a percentage of the Company’s revenue or based on a certain metric, such as the
number of searches or paid clicks. The Company expenses, as cost of revenue, TAC under two different methods.
Agreements with fixed payments are expensed ratably over the term the fixed payment covers. Agreements based
on a percentage of revenue, number of searches, or other metrics are expensed based on the volume of the
underlying activity or revenue multiplied by the agreed-upon price or rate.
Product Development. Product development expenses consist primarily of compensation-related expenses
(including stock-based compensation expense) incurred for research and development, the development of,
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 $148 million, $103 million, and $128
million for 2011, 2012, and 2013, 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 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.
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