Yahoo 2006 Annual Report Download - page 104

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Affiliate Commitments. In connection with contracts to provide sponsored search and/or display advertising
services to affiliates, the Company is obligated to make payments, which represent traffic acquisition costs, to its
affiliates. As of December 31, 2006, these commitments totaled $17 million, of which $16 million will be payable
in 2007.
Other Commitments. In the ordinary course of business, the Company may provide indemnifications of varying
scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters,
including, but not limited to, losses arising out of the Company’s breach of agreements, services to be provided by
the Company, or from intellectual property infringement claims made by third parties. In addition, the Company
has entered into indemnification agreements with its directors and certain of its officers that will require the
Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or
service as directors or officers. The Company has also agreed to indemnify certain former officers, directors and
employees of acquired companies in connection with the acquisition of such companies. The Company maintains
director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its
directors and officers, and former directors and officers of acquired companies, in certain circumstances. It is not
possible to determine the aggregate maximum potential loss under these indemnification agreements due to the
limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, the
Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any
liabilities related to such indemnification obligations in its consolidated financial statements.
During the year ended December 31, 2006, the Company reversed an earn-out accrual related to a prior acquisition,
which resulted in a $10 million reduction to operating expenses in the consolidated statements of income.
As of December 31, 2006, the Company did not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could
arise if the Company had engaged in such relationships.
Contractual Obligations. The following table presents certain payments due under contractual obligations with
minimum firm commitments as of December 31, 2006 (in millions):
Total Due in 2007
Due in
2008-2009
Due in
2010-2011
Due in
2012
or After
Payments Due by Period
Long-term debt
(1)
................... $ 750 $ — $750 $ — $ —
Operating lease obligations ............ 866 94 208 165 399
Affiliate commitments
(2)
.............. 17 16 1 — —
Total contractual obligations .......... $1,633 $110 $959 $165 $399
(1)
The long-term debt matures in April 2008, unless converted into Yahoo! common stock at a conversion price of $20.50 per share,
subject to adjustment upon the occurrence of certain events. Upon conversion, the Company has the right to deliver cash in lieu of
common stock. See Note 9 — “Long-Term Debt” for additional information related to the long-term debt.
(2)
The Company is obligated to make payments under contracts to provide sponsored search and/or display advertising services to its
affiliates, which represent traffic acquisition costs.
Contingencies. From time to time, third parties assert patent infringement claims against Yahoo!. Currently, the
Company is engaged in several lawsuits regarding patent issues and has been notified of a number of other potential
patent disputes. In addition, from time to time the Company is subject to other legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of trademarks, copyrights, trade secrets and
other intellectual property rights, claims related to employment matters, and a variety of other claims, including
94
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)