Yahoo 2015 Annual Report Download - page 125

(2) Gross goodwill balances for the EMEA segment were $1.1 billion as of January 1, 2014 and $1.2
billion as of December 31, 2015. The EMEA segment includes accumulated impairment losses of
$551 million as of January 1, 2014, and $1.2 billion as of December 31, 2015.
(3) Gross goodwill balances for the Asia Pacific segment were $480 million as of January 1, 2014
and $448 million as of December 31, 2015. The Asia Pacific segment includes accumulated
impairment losses of $150 million as of January 1, 2014 and $159 million as of December 31, 2015.
Goodwill Impairment Testing
Goodwill is not amortized but is evaluated for impairment annually (as of October 31) or whenever
the Company identifies certain triggering events or circumstances that would more likely than not
reduce the estimated fair value of a reporting unit below its carrying amount. Events or
circumstances that might indicate an interim evaluation is warranted include, among other things,
unexpected adverse business conditions, regulatory changes, loss of key personnel and reporting unit
and macro-economic factors such as deterioration in general economic conditions, limitations on
accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit
markets.
Goodwill is tested for impairment at the reporting unit level, which is one level below the Company’s
operating segments. The Company identified U.S. & Canada, Latin America, and Tumblr as the
reporting units below the Americas operating segment; Europe and Middle East as the reporting
units below the EMEA operating segment; and Taiwan, Hong Kong, Australia & New Zealand, India &
Southeast Asia as the reporting units below the Asia Pacific operating segment. These operating
segments are the same as the Company’s reportable segments.
To test for impairment, the Company uses the two-step quantitative test.
Step One
The first step of the quantitative test involves comparing the estimated fair value of the Company’s
reporting units to their carrying values, including goodwill.
In 2015, the estimated fair values of the reporting units for all reporting units identified, except for
Tumblr and Latin America, were estimated using a combination of a market approach and an income
approach, giving equal weighting to each. This combination is deemed to be the most indicative of
the reporting units’ estimated fair value in an orderly transaction between market participants and is
consistent with the methodology used for the goodwill impairment test in prior years. For the Tumblr
reporting unit, the fair value was estimated using an income approach which was deemed to be the
most indicative of fair value in an orderly transaction between market participants. For the Latin
America reporting unit, the fair value was estimated using the market approach as the income
approach yielded negative cash flows and was not deemed to be comparable. Under the market
approach, the Company utilizes publicly-traded comparable company information to determine
revenue and earnings multiples that are used to value our reporting units. Under the income
approach, the Company determines fair value based on estimated future cash flows of each reporting
unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of
inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. The
Company bases cash flow projections for each reporting unit using a forecast of cash flows and a
terminal value based on the Perpetuity Growth Model. The forecast and related assumptions were
derived from the most recent annual financial forecast for which the planning process commenced in
the fourth quarter of 2015. The estimated fair values of the Company’s Taiwan, Hong Kong, and
Australia & New Zealand reporting units exceeded their estimated carrying values and therefore
goodwill in those reporting units was not impaired. In 2015, the carrying value exceeded the fair value
for the following reporting units: U.S. & Canada, Europe, Tumblr and Latin America.
121