Yahoo 2005 Annual Report Download - page 100

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94
Note 14 LITIGATION SETTLEMENT
In April 2002, the Company’s wholly owned subsidiary, Overture, filed a lawsuit against Google Inc.
(“Google”) in the United States District Court for the Northern District of California with respect to a
patent which protected various features and innovations relating to bid-for-performance products and
Overture’s pay-for-performance (sponsored) search technologies. In addition, the Company had a second
dispute with Google concerning the shares issuable to the Company pursuant to a warrant held by the
Company to purchase Google shares that were received in connection with a June 2000 services
agreement.
In August 2004, Google issued 2.7 million shares of Class A common stock in settlement of the two
disputes. The Company agreed to dismiss the 361 patent lawsuits and granted to Google a fully-paid
license to the 361 patent as well as several related patent applications held by Overture. The Company
allocated the 2.7 million shares between the two disputes, based on the relative fair values of the two
disputes, including consideration of a valuation performed by a third party. A portion of the shares
allocated to the patent dispute has been recorded as an adjustment to goodwill for the period that the
patents were in effect prior to Overture’s acquisition by the Company. The portion of the shares received
for the settlement of the patent dispute which has been allocated to future periods has been recorded in
deferred revenue on the consolidated balance sheets and will be recognized as fees revenues over the
remaining life of the patent, approximately 12 years. The shares allocated to the warrant dispute
settlement did not have an income statement effect as the fair value of the warrant was recorded at the
time the services were performed based on the fair value of the services rendered.
During the year ended December 31, 2004, the Company disposed of approximately 4.0 million shares of
Google and realized gains of $413 million, net of selling costs, which were included in other income, net on
the consolidated statements of operations. During the year ended December 31, 2005 the Company sold
the remaining Google shares and realized gains of $961 million, which were recorded in other income, net.
Note 15 SEGMENTS
The Company manages its business geographically. The primary areas of measurement and
decision-making are the United States and International. Management relies on an internal management
reporting process that provides revenue and segment operating income before depreciation and
amortization for making financial decisions and allocating resources. Segment operating income before
depreciation and amortization includes income from operations before depreciation, amortization of
intangible assets and amortization of stock compensation expense. Management believes that segment
operating income before depreciation and amortization is an appropriate measure for evaluating the
operational performance of the Company’s segments. However, this measure should be considered in
addition to, not as a substitute for, or superior to, income from operations or other measures of financial
performance prepared in accordance with generally accepted accounting principles.