Yahoo 2014 Annual Report Download - page 99

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Foreign Currency Derivative Financial Instruments. The Company uses derivative financial
instruments, primarily foreign currency forward contracts and option contracts, to mitigate certain
foreign currency exposures. The Company hedges, on an after-tax basis, a portion of its net
investment in Yahoo Japan Corporation (“Yahoo Japan”). The Company has designated these foreign
currency forward and option contracts as net investment hedges. 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, 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 in 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 in
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.
The Company recognizes all derivative instruments as other assets or liabilities on the Company’s
consolidated balance sheets at fair value. See Note 9—“Foreign Currency Derivative Financial
Instruments” for a full description of the Company’s derivative financial instrument activities and
related accounting.
Property and Equipment. Buildings are stated at cost and depreciated using the straight-line
method over the estimated useful lives of 25 years. Leasehold improvements are amortized over the
lesser of their expected useful lives and the remaining lease term. Computers and equipment and
furniture and fixtures are stated at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Property and equipment to be held and used are reviewed 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
future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any
impairment loss for long-lived assets that management expects to hold and use is based on the
excess of the carrying value of the asset over its fair value. No impairments of such assets were
identified during any of the periods presented.
Capitalized Software and Labor. The Company capitalized certain software and labor costs totaling
approximately $180 million, $130 million, and $85 million during 2012, 2013, and 2014, respectively.
The estimated useful life of costs capitalized is evaluated for each specific project and ranges from
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