Yahoo 2015 Annual Report Download - page 100

Realized gains or losses and declines in value judged to be other-than-temporary, if any, on available-
for-sale securities are reported in other income, net. The Company evaluates its marketable debt
investments periodically for possible other-than-temporary impairment. A decline of fair value below
amortized costs of debt securities is considered an other-than-temporary impairment if the Company
has the intent to sell the security or it is more likely than not that the 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, 2015. 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, 2013, 2014 and 2015, gross realized gains and losses on
available-for-sale marketable 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.
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 (expense), net on the
Company’s consolidated statements of operations. 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 (expense), net on the Company’s consolidated statements of operations. 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 operations 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
(expense), net in the Company’s consolidated statements of operations.
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 (expense), net on the Company’s consolidated
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