Yahoo 2001 Annual Report Download - page 34

As of December 31, 2001, the Company’s federal and state net operating loss carr yforwards for income
tax purposes were approximately $3.3 billion and $1.8 billion, respectively. If not utilized, the federal net
operating loss carr yforwards will begin to expire in 2010, and approximately $32 million of the state net
operating loss carr yforwards will begin to expire in 2002. The Company’s federal and state research tax
credit carryforwards for income tax purposes are approximately $82 million and $74 million, respectively.
If not utilized, the federal tax credit carryforwards will begin to expire in 2010. Approximately $180 mil-
lion of net operating loss carr yforwards relate to acquired entities and expire beginning in 2010. The
Company has a valuation allowance of approximately $1.5 billion as of December 31, 2001 for deferred
tax assets because of uncertainty regarding their realization.
Deferred tax assets of approximately $1.4 billion as of December 31, 2001 pertain to certain net
operating loss carr yforwards and credit carryforwards resulting from the exercise of employee stock
options. When recognized, the tax benefit of these loss and credit carryforwards are accounted for as a
credit to additional paid-in capital rather than a reduction of the income tax provision. Deferred tax assets
include approximately $25 million related to net operating loss carryforwards in various foreign jurisdic-
tions. These carr yforwards will expire if not utilized.
Note 11. Commitments and Contingencies
Operating Leases. During 1999, the Company entered into agreements for the development of an office
complex in Sunnyvale, California to serve as the Company’s new headquarters. Construction was com-
pleted in the third quarter of 2001. Upon substantial completion of the construction, the Company funded
the lease facility with deposited funds drawn on the facility by the lessors. The total amount funded was
approximately $258.7 million. Approximately $222.4 million of this amount represents an investment in
the lease facility resulting from the Company’s role as a participant in the master lease facility. The
remaining $36.3 million represents collateral for funds provided by the facility’s other participants. These
amounts, have been classified as restricted long-term investments at December 31, 2001. Rent obliga-
tions for the complex bear a direct relationship to the lessor’s carrying costs of $258.4 million. The lease
provides the Company with the option at the end of the lease term in 2006 to (i) acquire the buildings for
an amount equal to the lessor’s carr ying costs; (ii) re-market the buildings; or (iii) renew the lease for a
second, five-year term, upon written consent of the participating parties. The Company has guaranteed
the residual value associated with the buildings under the lease to the lessor of approximately 86% of the
lessor’s carrying costs.
We have entered into various non-cancelable operating lease agreements for our headquarters, sales
offices throughout the U.S., and our international subsidiaries with original lease periods ranging from
6 months to 13 years and expiring between 2002 and 2012.
In addition, the Company has entered into various sublease arrangements associated with its excess
facilities under the 2001 restructuring programs. Such subleases have terms extending through 2006 and
amounts estimated to be received have been included in determining the restructuring accrual.
YHOO65YHOO64
Net lease commitments as of December 31, 2001 can be summarized as follows (in millions):
Gross Lease Sublease Net Lease
Year Ended December 31, Commitments Income Commitments
2002 $26.3 $ (9.7) $16.6
2003 $26.5 $(10.7) $15.8
2004 $23.9 $(10.2) $13.7
2005 $21.1 $ (9.1) $12.0
2006 $11.9 $ (4.5) $ 7.4
Due after 5 years $15.3 $ — $15.3
The Company also entered into an agreement committing to lease two additional buildings adjacent to
the Company’s headquarters in Sunnyvale, California. Construction began in the fourth quarter of 2001
and the buildings are expected to be ready for occupancy in the third quarter of 2003. Upon completion
of the building construction, the Company has committed to a 15 year lease obligation, with annual lease
payments under the lease of approximately $5.1 million in year one, approximately $6.7 million in year
two, and with increases of 3.5% in each of the following years. After year one of the lease, the Company
has the right to (i) purchase the buildings for approximately $68.9 million, plus fees, or (ii) restructure
the lease arrangement, or (iii) continue leasing the buildings under the original agreement for the remain-
ing fourteen years. These amounts are not included in the table above.
Other Commitments. In the ordinary course of business the Company enters into various arrangements
with vendors and other business partners, principally for marketing, bandwidth, and content arrange-
ments. There are no material commitments for these arrangements extending beyond 2002.
As discussed in Note 12 – “Subsequent Event,” the Company acquired HotJobs.com, Ltd. in February
2002. In connection with this acquisition, the Company paid approximately $206.6 million in cash (off-
set by cash acquired of $55.1 million) and issued approximately 12 million shares of Common Stock.
Contingencies. From time to time, the Company is subject to legal proceedings and claims in the ordinary
course of business, including claims of alleged infringement of trademarks, copyrights and other intel-
lectual property rights, and a variety of claims arising in connection with the Company’s email, message
boards, auction sites, shopping services, and other communications and community features, such as
claims alleging defamation or invasion of privacy. Currently, our subsidiary Launch Media, Inc. (“Launch”)
is engaged in a lawsuit regarding copyright issues which commenced prior to our entering into an agree-
ment to acquire Launch. In addition, from time to time, third parties assert patent infringement claims
against the Company in the form of letters, lawsuits and other forms of communication. Currently, the
Company is engaged in two lawsuits regarding patent issues and has been notified of a number of other
potential patent disputes.
The Company is not currently aware of any legal proceedings or claims that the Company believes
are likely to have a material adverse effect on the Company’s financial position, results of operations or
cash flows. However, the Company may incur substantial expenses in defending against third party claims.
In the event of a determination adverse to the Company, the Company may incur substantial monetary lia-
bility, and be required to change its business practices. Either of these could have a material adverse effect
on the Company’s financial position, results of operations and cash flows.