Analysis of Yahoo’s Accounting Policies
Yahoo! Inc. develops and maintains Yahoo! , a branded Internet navigational service that is among the most widely used guides for information and discovery on the World Wide Web. The Company was incorporated in California on March 5, 1995 and commenced operations on that date. The Company conducts its business within one industry segment.
Principles of Consolidation. The consolidated financial statements include the accounts of Yahoo! Inc. and its majority-owned subsidiaries.All significant intercompany accounts and transactions have been eliminated. The equity and loss from operations attributable to the minority shareholder interests which related to the Company’s foreign and domestic subsidiaries, are shown separately in the balance sheets and statements of operations, respectively.
Losses in excess of the minority interest equity are charged against the Company. Investments in entities owned 20% or more but less than majority owned and not otherwise controlled by the Company are accounted for under the equity method.Revenue Recognition. The Company derives substantially all of its revenues from the sale of advertisements on short-term contracts. Advertising revenues are recognized ratably over the period in which the advertisement is displayed, provided that no significant Company obligations remain and collection of the resulting receivable is probable.
Company obligations typically include guarantees of minimum number of “impressions,” or times that an advertisement appears in page views downloaded by users of Yahoo!.To the extent minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenues until guaranteed impression levels are achieved. Deferred revenue is comprised of billings in excess of recognized revenue relating to advertising contracts. License and royalty revenues are recognized as amounts are earned under the terms of applicable agreements, provided no significant Company obligations exist and collection of the resulting receivable is probable.Revenues from barter transactions are recognized during the period in which the advertisements are displayed in Yahoo!.
Barter transactions are recorded at the lower of estimated fair value of the goods or services received or the estimated fair value of the advertisements given. To date, barter transactions have been insignificant. Product Development. Costs incurred in the classification and organization of listings within Yahoo! and the development of new products and enhancements to existing products are charged to expense as incurred. Statement of Financial Accounting Standards No. 6, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
Based upon the Company’s product development process, technological feasibility is established upon completion of a working model. Advertising Costs. Advertising costs are recorded as expense the first time an advertisement appears. Cash, Cash Equivalents, Short and Long-Term Investments. The Company invests certain of its excess cash in debt instruments of the U.
S. Government, its agencies, and high-quality corporate issuers.All highly liquid instruments with an original maturity of three months or less are considered cash equivalents; those with original maturities greater than three months and current maturities less than twelve months from the balance sheet date are considered short-term investments, and those with maturities greater than twelve months from the balance sheet date are considered long-term investments. Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, short and long-term investments, and accounts receivable.Substantially all of the Company’s cash, cash equivalents, short and long-term investments are managed by two financial institutions.
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses; historically, such losses have been immaterial and within management’s expectations. Property and Equipment.Property and equipment, including leasehold improvements, are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally two to five years.
Income Taxes. Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws.Foreign Currency. The functional currency of the Company’s subsidiaries in the United Kingdom, Germany, and France is the local currency. The financial statements of these subsidiaries are translated to United States dollars using year-end rates of exchange for assets and liabilities, and average rates for the year for revenues, costs, and expenses.
Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not significant during the periods presented.Net Loss per Share. Net loss per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon conversion of the convertible preferred stock (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the treasury stock method or the modified treasury stock method, whichever applies).Common equivalent shares are excluded from the computation if their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletin, the convertible preferred stock (using the if-converted method) and common equivalent shares (using the treasury stock method and the assumed public offering price) in the computation as if they were outstanding for all periods presented.
Use of Estimates. The preparation of financial statements in conformity with generally ccepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Reclassification. Certain prior period balances have been reclassified to conform with current period presentation.
Benefit Plan. The Company maintains a 401(k) Profit Sharing Plan (the “401(k) Plan”) for its full time employees.Each participant in the 401(k) Plan may elect to contribute from 1% to 17% of his or her annual compensation to the 401(k) Plan. The Company matches employee contributions at a rate of 25%. Employee contributions are fully vested, whereas vesting in matching Company contributions occurs at a rate of 33.
3% per year of employment. All contributions to the 401(k) Plan are invested at the employee’s discretion in eight separate funds.Works Cited “Yahoo Investor Relations. ” Yahoo! – Yahoo! Inc. – Investor Relations.
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