Yahoo 2014 Annual Report Download - page 100

one to three years. During 2012, 2013, and 2014, the amortization of capitalized costs totaled
approximately $142 million, $175 million, and $161 million, respectively. Capitalized software and labor
costs are included in property and equipment, net. Included in the capitalized amounts above are $24
million, $16 million, and $12 million, respectively, of stock-based compensation expense in the years
ended December 31, 2012, 2013, and 2014.
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 more frequently if impairment indicators are present.
The Company’s reporting units are one level below the operating segments level. The reporting unit’s
carrying value is compared to its fair value. The estimated fair values of the reporting units are
determined using either the market approach, income approach or a combination of the market and
income approach. Goodwill is considered impaired if the carrying value of the reporting unit exceeds
its estimated fair value. The income approach uses expected future operating results and failure to
achieve these expected results may cause a future impairment of goodwill at the reporting unit. If the
carrying value of the reporting unit exceeds its estimated 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 estimated fair value. The Company conducts its annual goodwill impairment
test as of October 31, 2014. See Note 5—“Goodwill” for results of the goodwill impairment test.
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 as the pattern of use is ratable. 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 in the consolidated statements of income.
Investments in privately held equity interests in which the Company cannot exercise significant
influence are accounted for using the cost method of accounting.
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 remaining lease term.
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, the Company
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