Yahoo 2014 Annual Report Download - page 103

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.
Cost of revenue—TAC. TAC consists of payments made to third parties 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. TAC is either recorded as a
reduction of revenue or cost of revenue. TAC recorded as a reduction of revenue is related to the
Microsoft arrangement. TAC recorded as cost of revenue—TAC relates to the Company’s other
offerings. The Company enters into Affiliate agreements of varying duration that involve TAC. There
are generally two economic structures of the Affiliate agreements: fixed payments with or without a
guaranteed minimum amount of traffic delivered 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 TAC under two different methods. Agreements with fixed payments are
expensed ratably over the term the fixed payment covers or as the traffic is delivered. 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.
Cost of revenue—other. Cost of revenue-other consists of bandwidth costs, stock-based
compensation, content, and other expenses associated with the production and usage of Yahoo
Properties, including amortization of developed technology and patents. Cost of revenue—other also
includes costs for Yahoo’s technology platforms and infrastructure, including depreciation expense of
facilities and other operating costs, directly related to revenue generating activities.
Amortization of Intangibles. Amortization of customer, affiliate, and advertiser-related relationships
and tradenames, trademarks and domain names are classified within amortization of intangibles.
Amortization of developed technology and patents is included in cost of revenue—other.
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 $103 million, $128 million, and $142 million for 2012, 2013, and 2014, respectively.
Restructuring Charges. The Company has developed and implemented restructuring initiatives to
improve efficiencies across the organization, reduce operating expenses, and/or 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, the consolidation of certain real estate facilities and data centers, losses
on subleases, and contract termination costs. The Company’s restructuring plans include one-time
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