Yahoo 1997 Annual Report Download - page 28

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valuation allow ance is required. Deferred tax a s s e t s a n d re la t e d va lu a t ion a llow a n ce s of a p p roxim a t e ly
$18,600,000 relate to certain U.S. operating loss carryforw ards resulting from the exercise of e m p loye e s t ock
options, the tax benefit of w hich, w hen re cog n ize d , w ill b e a ccou n t e d for a s a credit to additional paid-in
capital rather than a reduction of the in com e t a x p rovis ion . Ad d it ion a lly, d e fe rre d t a x a s s e t s of $900,000 re late
to operating loss carryforw ards in various foreign jurisdictions. Cert a in of t h e se carryforw ard s w ill e xp ire if
not utilized. At December 31, 1997, the Company had approxima t e ly $54,200,000 of fe d e ra l n e t op e ra t in g los s
carryforw ard s for t a x re port in g p u rp os e s a va ila ble to offset future taxable income; such ca rryforw ards w ill
expire beginning in 2010. Additionally, t h e Com p a n y h a s a p p roxim a t e ly $26,200,000 of Ca liforn ia n e t op e ra t in g
loss carryforw ard s for t a x re port in g p u rp os e s w h ich w ill e xp ire b e g in n in g in 2003.
NOTE 8 Com m itm e n ts an d Con tin g e n cie s
Ope ratin g Le as es.During September 1997, the Company e n t e re d in t o a n on -ca n ce la b le op e ra t in g s u b le a s e
agreement w hich w ill p rovid e t h e Com p a n y w it h a d d it ion a l office s p a ce a t its existing Santa Clara, California
location. Additionally during 1997, the Company entered into various othe r n on -ca n ce la b le op e ra t in g le a s e
agreements for its sales offices throughout the Un it e d St a t e s a n d it s in t e rn a t ion a l s u b s id ia rie s . Fu t u re
minimum lease payments under non-cance la b le op e ra t in g le a s e s w it h in it ia l t e rm s of on e ye a r or m ore a re
$1,659,000 in 1998, $2,155,000 in 1999, $2,187,000 in 2000, $2,151,000 in 2001, $2,136,000 in 2002, and
$2,463,000 thereafter. Tot a l m in im u m re n t a l p a ym e n t s a g g re g a t e $12,751,000. Re n t e xp e n s e under operating
leases totaled $1,225,000, $436,000, and $32,000 during 1997, 1996, and 1995, re s p e ct ive ly.
Ne ts cape Guide by Yahoo!. Du rin g Ma rch 1997, t h e Com p a n y e n t e re d in t o ce rtain a g re e m e n t s w it h
Netscape Communications Corporation (“Netscape ”) u n d e r w hich the Company has de ve lop e d a n d
operates an Internet information na vig a t ion s e rvice ca lle d “Ne t s ca p e Gu id e b y Ya h oo!” (t h e “Gu id e ”). Th e
Co-Ma rke ting agreement provides that reve n u e from a d ve rtising on t h e Gu id e , w hich is mana g e d b y t h e
Com p a ny, is t o b e s h a re d b e t w e e n t h e Com p a n y a n d Ne t s ca p e . Un d e r t h e t e rm s of t h e Tra d e m a rk Lice n s e
agreement, the Company made a on e -t im e n on -re fu n d a b le t ra d e m a rk lice n s e fe e p a ym e n t of $5,000,000 in
Ma rch 1997 w hich is b e in g a m ortize d ove r t h e in it ia l t w o-ye a r t e rm , w h ich com m e n ce d in Ma y 1997. Un d e r
the terms of the Co-Marketing agreement a s a m e n d e d in J u n e 1997, t h e Com p a n y a ls o p rovid e d Ne t s ca p e
w ith a m in im u m of u p t o $4,660,000 in g u a ra n t e es against shared advertising revenues in the firs t ye a r of
the agreement, subject in the first ye a r t o a m in im u m le ve l of g ros s re ve n u e b e in g m e t , a n d u p t o a
minimum of $15,000,000 in the second year of the agree m e n t , s u b je ct in t h e s e con d ye a r t o ce rtain
minimum levels of impressions being reached on the Gu id e . Act u a l p a ym e n t s w ill re la t e d ire ct ly t o t h e
overall revenue and impressions re cog n ize d from t h e Gu id e . As of De ce m b e r 31, 1997, $1,160,000 of s h a re d
advert is in g re ve nues had been paid to Netscape u n d e r t h is a g re e m e n t .
Ne ts cape Pre mie r Prov ide r. Als o d u rin g Ma rch 1997, t h e Com p a n y e ntered into an agreeme n t w ith Netscape
w here b y it w a s d e s ig n a t e d a s on e of four “Pre m ie r Provid e rs” of d om e stic navigational services w ithin the
Netscape We b s it e . Un d e r t h e t e rm s of t h e a g re e m e n t , t h e Com p a ny is required to make minimum payments
of $3,200,000 in cash and is obligated to provide $1,500,000 in the Company’s advertising services in return
for cert a in m in im u m g u a ra nteed exposures over the course of the on e -ye a r t e rm of t h e a g re e m e n t , w h ich
commenced in May 1997. The minimum payments are a m ortized over the t e rm of t h e a g re e m e n t . As of
December 31, 1997, the Company had paid $2,456,000 in cash unde r t h e t e rm s of t h e a g re e m e n t . Exp e n s e s
incurred to date as of December 31, 1997 unde r t h e a g re e m e n t w e re a p p roxim a t e ly $4,600,000. To t h e e xt e n t
that the minimum guaranteed exposure s a re e xce e d e d , t h e Com p a n y is ob lig a t e d t o re m it t o Ne t s ca p e a d d i-
tional payments.
During June 1997, the Company entered into certain agreeme n t s w ith Netscape w hereby it w as designated
as a Premier Provider of international sea rch a n d n a vig a t ion a l g u id e s e rvice s for t h e Ne t s ca p e Ne t Se a rch
program. Under the terms of the agree m e n t s , t h e Com p a n y w ill provide se rvice s in 12 cou n t rie s , in clu d in g
Australia, Denmark, France, Germany, It a ly, Japan, Kore a , Th e Ne t h e rla n d s , Portugal, Sp a in , Sw e d e n , a n d t h e
United Kingdom. Unde r t h e t e rm s of t h e a g re e m e n t s , t h e Com p a n y m a d e a ca s h p a ym e n t of $2,900,000 in
July 1997 and is obligated to provide $100,000 in the Company’s a d ve rtising s e rvice s in re t u rn for ce rtain
minimum guaranteed exposures over the cou rs e of t h e on e -ye a r t e rm of t h e a g re e m e n t s , w h ich com m e n ce d
in July 1997. The Company amort ize s t h e total cost of these agreements ove r t h e ir on e -ye a r t e rm .
NOTE 9 Litig ation
In July 1997, GTE New Me d ia Se rvice s Incorporated (“GTE New Media”), an affiliate of GTE, file d s u it in
Dallas, Texa s a g a in s t Ne t s ca p e a n d t h e Com p a n y, in w hich GTE Ne w Me d ia m a d e a number of claims relat-
ing to the inclusion of cert a in Ye llow Pa g e s h yp e rtext lin ks in t h e Ne t s ca p e Gu id e b y Ya h oo!, a n on lin e
navigational property operated by the Company under an a g re e m e n t w ith Ne t s ca p e . In t h is la w suit, GTE
New Me d ia h a s a lleged, among other things, that by including such links to the Yellow Pa g e s service
operated by several Regiona l Be ll Op e ra t in g Com p a n ie s (t h e “RBOCs ”) w ithin the Gu id e , t h e Com p a n y h a s
tort iou s ly in t e rfe re d w it h a n a lle g e d con t ra ctual relationship betw een GTE New Me d ia and Netscape relating
to placement of links by Netscape for a Yellow Pages service operated by GTE Ne w Media. GTE New Media
seeks injunctive relief as w ell as actual and punitive d a m a g e s . In Oct ob e r 1997, GTE Ne w Me d ia b rou g h t s u it
in the U.S. District Court for t h e Dis t rict of Colu m b ia , a g a in s t t h e RBOCs , Ne tscape, and the Company, in
w hich GTE Ne w Me d ia h a s a lle g e d , a m on g ot h e r things, that the alleged exclusion of the GTE Ne w Media
Yellow Pa g e s from t h e Ne t s ca p e Gu id e Ye llow Pa g e s s e rvice viola t e s fe d e ra l a n t it ru s t la w s , a n d GTE Ne w
Me dia seeks injunctive relief and da m a g e s (t re b le d u n d e r fe d e ra l a n t it ru s t la w s ) from s u ch a lle g e d a ct ion s .
The Company believes that the claims a g a in s t t h e Com p a n y in t h e s e la w s u it s a re w ithout me rit a n d
intends to conte s t t h e m vig orou s ly. Alt h ou g h t h e Com p a n y ca n n ot p re d ict w it h ce rtainty t h e ou t com e of
these la w s u it s or t h e e xp e n s e s t h a t m a y b e in cu rre d in d e fe n d in g t h e la w suits, t h e Com p a n y d oe s n ot
believe that the result in the la w suits w ill have a material adve rs e e ffe ct on t h e Com p a n y's fin a ncial posi-
tion or results of operations. From time to time the Company is subject to other le g a l p roce e d in g s a n d
claims in the ordinary course of business, including claims of alle g e d in frin g e m e n t of t ra d e m a rks a n d ot h e r
intellectual property rights. The Company is not currently aw are of any legal proceedings or cla im s t h a t
the Company believes w ill have, individually or in the aggregate , a m a t e ria l a d ve rs e e ffe ct on t h e
Com p a ny's fin a n cia l p os it ion or re s u lt s of op e ra t ion s .