Trademark Trial and Appeal Board Electronic Filing System. http://estta.uspto.gov
`ESTTA656163
`ESTTA Tracking number:
`02/17/2015
`
`Filing date:
`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`92058162
`Defendant
`Sayed Najem dba Social Network
`CHRISTINE K BUSH
`HINCKLEY ALLEN & SNYDER LLP
`50 KENNEDY PLAZA SUITE 1500
`PROVIDENCE, RI 02903
`UNITED STATES
`sayednajem@hotmail.com, cbush@hinckleyallen.com
`Defendant's Notice of Reliance
`Christine K. Bush
`cbush@hinckleyallen.com, adubrovsky@hinckleyallen.com,
`pstroke@hinckleyallen.com
`/Christine K. Bush/
`02/17/2015
`Notice of Reliance.pdf(29982 bytes )
`Exhibit A (R024-0623).pdf(473013 bytes )
`Exhibit B (R0624-0626).pdf(542385 bytes )
`Exhibit C (Google Docs).pdf(2995679 bytes )
`
`Proceeding
`Party
`
`Correspondence
`Address
`
`Submission
`Filer's Name
`Filer's e-mail
`
`Signature
`Date
`Attachments
`
`

`
`THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`
`
`
`
`
`Cancellation No. 92058162
`Registration No. 4094706
`
`
`
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`ALEXANDER KRONIK,
`
`
`
`Petitioner,
`
`
`
`
`
`
`
`
`
`
`
`v.
`
`
`
`
`
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`
`
`SAYED NAJEM
`d/b/a SOCIAL NETWORK
`
`
`
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`
`Registrant.
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`REGISTRANT’S NOTICE OF RELIANCE
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`
`
`Registrant hereby makes the following documents of record and notifies Petitioner of his
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`reliance on the following in connection with this proceeding:
`
`1) Pursuant to 37 C.F.R. § 2.122(e) and TBMP 704.07, Registrant submits Yahoo! Inc.’s
`
`Form 10-Q, filed with the United States Securities and Exchange Commission (“SEC”)
`
`for the quarterly period ended March 31, 2013 (Bates numbered R0524-R0623), as
`
`Exhibit A. This Yahoo! Inc. filing with the SEC is relevant to the likelihood of confusion
`
`analysis, and the following factors in particular: (1) the number and nature of similar
`
`marks in use on similar goods; and (2) the lack of potential confusion.
`
`2) Pursuant to 37 C.F.R. § 2.122(e) and TBMP § 704.08(b), Registrant submits content from
`
`a third party website, http://alikeapp.wordpress.com/2012/10/10/alike-launches-on-
`
`techcrunch), printed on September 22, 2014, as Exhibit B. This third party website is
`
`relevant to the likelihood of confusion analysis, and the following factors in particular:
`
`(1) the number and nature of similar marks in use on similar goods; and (2) the lack of
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`potential confusion.
`
`

`
`3) Pursuant to TBMP § 704.11 and Fed. R. Evid. 803(6) and 902(11), Registrant submits the
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`following documents produced by Google, Inc., in response to a subpoena duces tecum
`
`issued by Registrant during discovery in this proceeding, as Exhibit C:
`
`o Certificate of Authenticity from Mika Yukimura;
`
`o Subpoena Duces Tecum issued to Google, Inc.’s Keeper of the Records by Registrant;
`
`and
`
`o Records pertaining to the following email addresses:
`
`o
`
`o
`
`o
`
`o
`
`o
`
`o
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`o
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`o
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`o
`
`o
`
`o
`
`o
`
`o
`
`o
`
`o
`
`o
`
`Wizarlean@gmail.com;
`
`Waraksin86@gmail.com;
`
`Tocadisco1989@gmail.com;
`
`Queasy1451@gmail.com;
`
`Pivaanval@gmail.com;
`
`Orfenos@gmail.com;
`
`Malojorsk@gmail.com;
`
`Lawaman@gmail.com;
`
`Irinarusskih1985@gmail.com;
`
`Glassapplez@gmail.com;
`
`Flopan@gmail.com;
`
`Dykkes@gmail.com;
`
`Cyclick65@gmail.com;
`
`Cindekat@gmail.com;
`
`3adrotnonstop@gmail.com;
`
`21dark21@gmail.com;
`
`
`
`2
`
`

`
`o
`
`o
`
`o
`
`007wr123@gmail.com;
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`006klim@gmail.com; and
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`2355559@gmail.com.
`
`These documents, discussed in the Expert Report of Yalkin Demirkaya, are relevant to:
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`(1) whether the Petitioner’s downloadable software has been in use; and (2) the
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`Petitioner’s propensity for fraudulent statements and intentional misrepresentations in
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`connection with his purported downloadable software and throughout this proceeding.
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`
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`SAYED NAJEM d/b/a SOCIAL NETWORKING
`
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`/s/ Christine K. Bush
` By:
`Christine K. Bush, Esq.
`
`Hinckley, Allen & Snyder LLP
`50 Kennedy Plaza, Suite 1500
`Providence, RI 02903
`(401) 274-2000 Phone
`(401) 277-9600 Fax
`cbush@hinckleyallen.com
`
`Attorney for Respondent
`
`
`
`
`
`
`
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`
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`
`
`Dated: February 17, 2015
`
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`3
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`

`
`CERTIFICATE OF TRANSMISSION
`
`I hereby certify that this correspondence is being electronically transmitted to the United
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`States Trademark Trial and Appeal Board via ESTTA on February17, 2015.
`
`
`
`/s/ Christine K. Bush
`
`
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`4
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`

`
`THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`
`
`
`
`
`Cancellation No. 92058162
`Registration No. 4094706
`
`
`
`
`
`
`
`
`
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`
`ALEXANDER KRONIK,
`
`
`
`Petitioner,
`
`
`
`
`
`
`
`
`
`
`
`v.
`
`
`
`
`
`
`
`
`SAYED NAJEM
`d/b/a SOCIAL NETWORK
`
`
`
`
`
`
`
`
`
`Registrant.
`
`
`
`
`
`
`
`
`
`
`
`
`
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`
`
`
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`
`
`CERTIFICATE OF SERVICE
`
`
`I hereby certify that a true and complete copy of Notice of Reliance has been served on
`counsel to Alexander Kronik by sending said copy on February 17, 2015, via electronic and First
`Class Mail, postage prepaid to:
`
`
`Paulo A. de Almeida
`Alex D. Patel
`Patel & Almeida, P.C.
`16830 Ventura Blvd., Suite 360
`Encino, CA 91436
`
`
`
`
`
`
`
`
`
`
`
`/s/ Christine K. Bush
`
`
`
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`
`
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`
`
`53075606 v2
`
`5
`
`

`
`EXHIBIT A
`
`EXHIBIT AEXHIBIT A
`
`

`
`9/16/2014
`
`10-Q
`
`10-Q 1 d498788d10q.htm 10-Q
`
`Table of Contents
`
`
`
`
`
`
`
`
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`Form 10-Q
`
` QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURIT
`EXCHANGE ACT OF 1934
`For the quarterly period ended March 31, 2013
`
`IES
`
`TIES
`
`
` TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI
`EXCHANGE ACT OF 1934
`For the transition period from to
`
`or
`
`
`
`
`
`
`
`Commission File Number 000-28018
`
`Yahoo! Inc.
`(Exact name of Registrant as specified in its charter)
`
`
`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`
`
`
`
`
`77-0398689
`(I.R.S. Employer
`Identification No.)
`
`701 First Avenue
`Sunnyvale, California 94089
`(Address of principal executive offices, including zip code)
`
`
`
`Registrant’s telephone number, including area code: (408) 349-3
`
`Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
`Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to
`file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
`
`300
`
`Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any,
`every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
`during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such
`files). Yes  No 
`
`Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
`smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
`Rule 12b-2 of the Exchange Act.
`
`Large accelerated filer 
`Non-accelerated filer
`R0524
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
` Accelerated filer
` 
` Smaller reporting company 
`1/100
`
`

`
`9/16/2014
`
`10-Q
` (Do not check if a smaller reporting company)
`
`Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
`Act). Yes  No 
`
`Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
`
`Class
`Common Stock, $0.001 par value
`
`
`
`
`Outstanding at April 30, 2013
`1,082,634,754
`
`
`
`
`
`R0525
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
`2/100
`
`

`
`9/16/2014
`
`Table of Contents
`
`10-Q
`
`YAHOO! INC.
`
`Table of Contents
`
`
`
`
`
`2
`
`
`PART I FINANCIAL INFORMATION
` 3
`Item 1.
` Condensed Consolidated Financial Statements (unaudited)
` 3
` 3
` Condensed Consolidated Balance Sheets as of December 31, 2012 and March 31, 2013 (unaudited)
` Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2013 (unaudited) 4
`Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and
`2013 (unaudited)
`Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2013
`(unaudited)
`
` Notes to Condensed Consolidated Financial Statements (unaudited)
`Item 2.
` Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Item 3.
` Quantitative and Qualitative Disclosures About Market Risk
` Controls and Procedures
`Item 4.
`PART II OTHER INFORMATION
`Item 1.
` Legal Proceedings
`Item 1A. Risk Factors
`Item 2.
` Unregistered Sales of Equity Securities and Use of Proceeds
`Item 3.
` Defaults Upon Senior Securities
` Mine Safety Disclosures
`Item 4.
`Item 5.
` Other Information
`Item 6.
` Exhibits
` Signatures
`
` 5
`
` 6
` 7
` 28
` 41
` 43
` 44
` 44
` 44
` 57
` 57
` 57
` 57
` 57
` 58
`
`R0526
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
`3/100
`
`

`
`9/16/2014
`
`Table of Contents
`
`10-Q
`
`PART I — FINANCIAL INFORMATION
`
`Condensed Consolidated Financial Statements (unaudited)
`
`YAHOO! INC.
`Condensed Consolidated Balance Sheets
`
`
`Item 1.
`
`
`
`
`ASSETS
`Current assets:
`Cash and cash equivalents
`Short-term marketable debt securities
`Accounts receivable, net
`Prepaid expenses and other current assets
`Total current assets
`Long-term marketable debt securities
`Alibaba Group Preference Shares
`Property and equipment, net
`Goodwill
`Intangible assets, net
`Other long-term assets
`Investments in equity interests
`Total assets
`LIABILITIES AND EQUITY
`Current liabilities:
`Accounts payable
`Accrued expenses and other current liabilities
`Deferred revenue
`Total current liabilities
`Long-term deferred revenue
`Capital lease and other long-term liabilities
`Deferred and other long-term tax liabilities
`Total liabilities
`Commitments and contingencies (Note 11)
`Yahoo! Inc. stockholders’ equity:
`Common stock, $0.001 par value; 5,000,000 shares authorized; 1,189,816 shares issued
`and 1,115,233 shares outstanding as of December 31, 2012 and 1,197,437 shares
`issued and 1,084,766 shares outstanding as of March 31, 2013
`Additional paid-in capital
`Treasury stock at cost, 74,583 shares as of December 31, 2012 and 112,671 shares as of
`March 31, 2013
`Retained earnings
`Accumulated other comprehensive income
`Total Yahoo! Inc. stockholders’ equity
`Noncontrolling interests
`Total equity
`Total liabilities and equity
`
`1,187
`
` 9,563,348
`
`
`
`
`1,196
`
` 9,639,638
`
`
`
` (2,143,119)
` (1,368,043)
`
` 6,182,744
` 5,792,459
`
`
`459,457
`
`571,249
`
` 14,139,916
` 14,560,200
`
`
`46,012
`
`45,403
`
` 14,185,928
` 14,605,603
`
` $17,103,253 $16,490,979
`
`
`
`
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`
`
`
`
`R0527
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
`4/100
`
`
`
`
`
`
`
`March 31,
`December 31,
`2013
`
`
`2012
`(Unaudited, in thousands
`except par values)
`
`
`
`
`
` $ 2,667,778 $ 1,174,633
` 1,838,527
` 1,516,175
`
` 1,008,448
`
`943,658
`
`
`460,312
`
`644,204
`
` 5,652,713
` 4,601,022
`
` 1,838,425
` 2,382,026
`
`
`816,261
`
`830,925
`
` 1,685,845
` 1,612,690
`
` 3,826,749
` 3,803,433
`
`
`153,973
`
`136,610
`
`
`289,130
`
`239,427
`
` 2,840,157
` 2,884,846
`
` $17,103,253 $16,490,979
`
`
`
`
`110,162
` $
`184,831 $
`720,461
`
`
`808,475
`
`308,462
`
`296,926
`
`
` 1,290,232
` 1,139,085
`
`
`407,560
`
`370,414
`
`
`124,587
`
`121,475
`
`
`675,271
`
`674,077
`
` 2,497,650
` 2,305,051
`
`
`—
`
`—
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`
`9/16/2014
`
`10-Q
`
`3
`
`R0528
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
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`5/100
`
`

`
`
`
`
`
`
`
`
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`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Three Months Ended
`March 31,
`March 31,
`
`
`2012
`2013
`(Unaudited, in thousands
`except per share amounts)
`
`
` $1,221,233 $1,140,368
`
`
`66,068
`
`144,091
`
`
`278,007
`
`253,980
`
`
`257,019
`
`285,267
`
`
`219,580
`
`228,478
`
`
`133,421
`
`124,271
`
`
`7,365
`
`10,053
`
`
`(7,062)
`
`5,717
`
`
`954,398
`
` 1,051,857
`
`185,970
`
`
`169,376
`
`17,072
`
`
`2,278
`
`203,042
`
`
`171,654
`
`(29,736)
`
`
`(56,419)
`
`217,588
`
`
`172,243
`
`390,894
`
`
`287,478
`
`(609)
`
`
`(1,135)
`
` $ 286,343 $ 390,285
`0.36
` $
`0.24 $
` $
`0.23 $
`0.35
` 1,215,783
` 1,094,170
`
` 1,226,486
` 1,108,095
`
`2,893 $
`
`21,097
`19,471
`
`12,505
`
`
`
`
`
`
`
` $
`
`
`
`
`
`
`
`3,578
`16,045
`8,263
`16,719
`
`10-Q
`
`YAHOO! INC.
`Condensed Consolidated Statements of Income
`
`9/16/2014
`
`Table of Contents
`
`
`
`
`
`
`Revenue
`Operating expenses:
`Cost of revenue — traffic acquisition costs
`Cost of revenue — other
`Sales and marketing
`Product development
`General and administrative
`Amortization of intangibles
`Restructuring charges (reversals), net
`Total operating expenses
`Income from operations
`Other income, net
`Income before income taxes and earnings in equity interests
`Provision for income taxes
`Earnings in equity interests
`Net income
`
`Net income attributable to noncontrolling interests
`Net income attributable to Yahoo! Inc.
`Net income attributable to Yahoo! Inc. common stockholders per share — basic
`Net income attributable to Yahoo! Inc. common stockholders per share — diluted
`Shares used in per share calculation — basic
`Shares used in per share calculation — diluted
`Stock-based compensation expense by function:
`Cost of revenue — other
`Sales and marketing
`Product development
`General and administrative
`
`
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`4
`
`R0529
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
`6/100
`
`

`
`
`
`
`
`
`
`Three Months Ended
`March 31,
`March 31,
`
`
`
`2012
`2013
`
`
`(Unaudited, in thousands)
`
` $287,478 $ 390,894
`
`
`
`
`
`
`
`(463)
`
`
`
`1,036
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`(37)
`999
`
`7,728
`
`7,265
`
`
`
` (281,505)
` 10,234
`
` 168,714
`
`—
`
` (112,791)
` 10,234
`
` (111,792)
` 17,499
`
` 279,102
` 304,977
`
`
`(609)
`
`(1,135)
`
` $303,842 $ 278,493
`
`10-Q
`
`YAHOO! INC.
`Condensed Consolidated Statements of Comprehensive Income
`
`9/16/2014
`
`Table of Contents
`
`
`
`
`
`Net income
`Available-for-sale securities:
`Unrealized gains (losses) on available-for-sale securities, net of taxes of $100 and $154 for the
`three months ended March 31, 2012 and 2013, respectively
`Reclassification adjustment for realized (gains) losses on available-for-sale securities included
`in net income, net of taxes of $(4,425) and $24 for the three months ended March 31, 2012
`and 2013, respectively
`Net change in unrealized gains (losses) on available-for-sale securities, net of tax
`Foreign currency translation adjustments:
`Foreign currency translation adjustments (“CTA”), net of tax
`Net investment hedge CTA, net of tax
`Net foreign currency translation adjustments, net of tax
`Other comprehensive income (loss)
`Comprehensive income
`Less: comprehensive income attributable to noncontrolling interests
`Comprehensive income attributable to Yahoo! Inc.
`
`
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`
`
`5
`
`R0530
`http://www.sec.gov/Archives/edgar/data/1011006/000119312513202371/d498788d10q.htm
`
`7/100
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`
`10-Q
`
`YAHOO! INC.
`Condensed Consolidated Statements of Cash Flows
`
`9/16/2014
`
`Table of Contents
`
`
`
`
`
`CASH FLOWS FROM OPERATING ACTIVITIES:
`Net income
`Adjustments to reconcile net income to net cash provided by operating activities:
`Depreciation
`Amortization of intangible assets
`Stock-based compensation expense, net
`Non-cash restructuring charges
`Accrued dividend income related to Alibaba Group Preference Shares
`Dividends received from equity investees
`Tax benefits from stock-based awards
`Excess tax benefits from stock-based awards
`Deferred income taxes
`Earnings in equity interests
`(Gain) loss from sales of investments, assets, and other, net
`Changes in assets and liabilities, net of effects of acquisitions:
`Accounts receivable, net
`Prepaid expenses and other
`Accounts payable
`Accrued expenses and other liabilities
`Deferred revenue
`Net cash provided by operating activities
`CASH FLOWS FROM INVESTING ACTIVITIES:
`Acquisition of property and equipment, net
`Purchases of marketable debt securities
`Proceeds from sales of marketable debt securities
`Proceeds from maturities of marketable debt securities
`Acquisitions, net of cash acquired
`Purchases of intangible assets
`Other investing activities, net
`Net cash used in investing activities
`CASH FLOWS FROM FINANCING ACTIVITIES:
`Proceeds from issuance of common stock, net
`Repurchases of common stock
`Excess tax benefits from stock-based awards
`Tax withholdings related to net share settlements of restricted stock units
`Other financing activities, net
`Net cash used in financing activities
`Effect of exchange rate changes on cash and cash equivalents
`Net change in cash and cash equivalents
`Cash and cash equivalents at beginning of period
`Cash and cash equivalents at end of period
`
`Three Months Ended
`March 31,
`March 31,
`
`
`2012
`2013
`
`(Unaudited, in thousands)
`
`
`
` $ 287,478 $
`
`
`122,750
`
`31,345
`
`55,966
`
`—
`
`—
`
`—
`
`1,014
`
`(8,161)
`
`(4,399)
`
`(172,243)
`
`(3,857)
`
`
`
`102,641
`
`(9,430)
`
`(42,442)
`
`(43,988)
`
`(19,221)
`
`297,453
`
`
`
`(109,791)
`
`(176,220)
`
`133,961
`
`77,700
`
`—
`
`(1,802)
`
`(7,280)
`
`(83,432)
`
`
`
`61,108
`
`11,623
`
`
`(775,075)
`
`(70,500)
`
`
`12,807
`
`8,161
`
`
`(43,689)
`
`(31,504)
`
`
`(1,405)
`
`(1,013)
`
`
`(746,254)
`
`(83,233)
`
`
`(14,693)
`
`26,790
`
`
` (1,493,145)
`157,578
`
`
` 2,667,778
` 1,562,390
`
` $1,719,968 $ 1,174,633
`
`
`
`
`
`
`390,894
`
`143,864
`18,410
`44,605
`547
`(20,251)
`12,000
`9,537
`(12,807)
`(20,158)
`(217,588)
`11,905
`
`57,853
`19,707
`(71,135)
`(123,472)
`(25,229)
`218,682
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`(69,581)
`
` (1,481,293)
`
`424,347
`
`183,100
`
`(10,147)
`
`(1,128)
`
`3,822
`
`(950,880)
`
`
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
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`10-Q
`
`YAHOO! INC.
`
`Notes to Condensed Consolidated Financial Statements
`(unaudited)
`
`ES
`Note 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICI
`The Company. Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!” or the “Company”), is focused on making
`the world’s daily habits inspiring and entertaining. By creating highly personalized experiences for users, the Company keeps
`people connected to what matters most to them, across devices and around the world. The Company creates value for advertisers
`by connecting them with the audiences that build their businesses. Advertisers can build their businesses through advertising to
`targeted audiences on the Company’s online properties and services (“Yahoo! Properties”), or through a distribution network of
`third-party entities (“Affiliates”) who integrate the Company’s advertising offerings into their Websites or other offerings (those
`Websites and other offerings, “Affiliate sites”).
`
`Basis of Presentation. The condensed consolidated financial statements include the accounts of Yahoo! Inc. and its
`majority-owned or otherwise controlled subsidiaries. All significant intercompany accounts and transactions have been
`eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity
`interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the
`condensed consolidated balance sheets. The Company has included the results of operations of acquired companies from the date
`of the acquisition. Certain prior period amounts have been reclassified to conform to the current period presentation.
`
`The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only
`normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for
`the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year
`or for any future periods.
`
`The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”)
`in the United States (“U.S.”) requires management to make estimates, judgments, and assumptions that affect the reported
`amounts of assets, liabilities, revenue, and expenses and the related disclosure of contingent assets and liabilities. On an ongoing
`basis, the Company evaluates its estimates, including those related to revenue, the useful lives of long-lived assets including
`property and equipment and intangible assets, investment fair values, stock-based compensation, goodwill, income taxes,
`contingencies, and restructuring charges. The Company bases its estimates of the carrying value of certain assets and liabilities on
`historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these
`carrying values are not readily available from other sources. Actual results may differ from these estimates.
`
`These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
`and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Certain
`information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have
`been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2012 was derived from the Company’s
`audited financial statements for the year ended December 31, 2012, but does not include all disclosures required by U.S. GAAP.
`However, the Company believes the disclosures are adequate to make the information presented not misleading.
`
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`10-Q
`
`Note 2 INVESTMENTS AND FAIR VALUE MEASUREMENTS
`The following tables summarize the investments in available-for-sale securities (in thousands):
`
`
`
`
`
`Gross
`Amortized
`
`
`Costs
` $1,312,876 $
`
`December 31, 2012
`Gross
`Gross
`Unrealized
`Unrealized
`Losses
`
`Gains
`985 $
`
`
`
`Estimated
`
`Fair Value
`
`
`(45) $1,313,816
`
`1,597
`
` 2,039,809
`
` —
`
`230
`
` —
`
`816,261
`
` $4,169,176 $ 2,582
`
`
`
`
`
`
`
`
`
`
`
`
`
` 2,040,784
`(622)
`
`
`197
`(33)
`
`
`816,261
`—
`
` $ (700) $4,171,058
`
`
`
`Gross
`Amortized
`
`
`Costs
` $1,297,097 $
`
`March 31, 2013
`Gross
`Gross
`Unrealized
`Estimated
`Unrealized
`
`Gains
`
`Fair Value
`
`
`Losses
`840 $
`(192) $1,297,745
`
`
`
` 2,922,808
`(1,391)
`
`1,991
`
` 2,922,208
`
`
`278
`—
`
`40
`
`
`238
`
`
`830,925
`—
`
` —
`
`830,925
`
` $5,050,468 $ 2,871 $ (1,583) $5,051,756
`
`
`
`
`
`
`
`
`
`
`
`
`
`December 31,
`2012
`
`March 31,
`2013
`
`
`
`
`
`
`
` $1,516,175 $1,838,527
` 2,382,026
` 1,838,425
`
`
`816,261
`
`830,925
`
`
`197
`
`278
`
` $4,171,058 $5,051,756
`
`
`
`
`Government and agency securities
`Corporate debt securities, commercial paper, and bank certificates of
`deposit
`Corporate equity securities
`Alibaba Group Preference Shares
`Total investments in available-for-sale securities
`
`
`
`
`Government and agency securities
`Corporate debt securities, commercial paper, and bank certificates of
`deposit
`Corporate equity securities
`Alibaba Group Preference Shares
`Total investments in available-for-sale securities
`
`
`
`Reported as:
`Short-term marketable debt securities
`Long-term marketable debt securities
`Alibaba Group Preference Shares
`Other assets
`Total
`
`Available-for-sale securities included in cash and cash equivalents on the condensed consolidated balance sheets are not
`included in the table above as the gross unrealized gains and losses were immaterial as of December 31, 2012 and March 31,
`2013 as the carrying value approximates fair value because of the short maturity of those instruments. Realized gains and losses
`from sales of marketable securities were not material for both the three months ended March 31, 2012 and March 31, 2013.
`
`
`
`The contractual maturities of available-for-sale marketable debt securities were as follows (in thousands):
`
`March 31,
`December 31,
`
`
`2013
`
`2012
` $1,516,175 $1,838,527
` 2,382,026
` 1,838,425
`
` $3,354,600 $4,220,553
`
`
`
`
`
`
`
`Due within one year
`Due after one year through five years
`Total available-for-sale marketable debt securities
`
`
`
`8
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`The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has
`not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time
`that individual securities have been in a continuous unrealized loss position (in thousands):
`
`
`
`
`
`
`
`
`
`
`Total
`
`December 31, 2012
`12 Months or Greater
`Less than 12 Months
`Fair
`Fair
`Unrealized
`Fair
`Unrealized
`
`Value
`
`Value
`
`
`
`Value
`
`Loss
`Loss
` $ 165,025 $
`(45) $ — $
`— $ 165,025 $
`
`
`
`
`Unrealized
`
`Loss
`(45)
`
`
`
`
`
`
`729,046
`197
`
`
`
`(622)
`(33)
`
` —
` —
`
`
`
`—
`—
`
`
`
`729,046
`197
`
`
`
`(622)
`(33)
`
` $ 894,268 $ (700) $ — $
`
`— $ 894,268 $ (700)
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Total
`
`March 31, 2013
`12 Months or Greater
`Less than 12 Months
`Fair
`Fair
`Unrealized
`Fair
`Unrealized
`
`Value
`
`Value
`
`
`
`Value
`
`Loss
`Loss
` $ 344,981 $
`(192) $ — $
`— $ 344,981 $
`
`
`
`
`Unrealized
`
`Loss
`(192)
`
` 1,002,662
`
`
`
`
`
`(1,391)
`
` —
`
`
`
`— 1,002,662
`
`
`
`
`
`(1,391)
`
` $1,347,643 $ (1,583) $ — $
`
`— $1,347,643 $ (1,583)
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Government and agency securities
`Corporate debt securities, commercial paper, and
`bank certificates of deposit
`Corporate equity securities
`Total investments in available-for-sale
`securities
`
`
`
`
`
`
`Government and agency securities
`Corporate debt securities, commercial paper, and
`bank certificates of deposit
`Total investments in available-for-sale
`securities
`
`The Company’s investment portfolio consists of liquid high-quality fixed income government, agency, and corporate debt
`securities, money market funds, time deposits with financial institutions, and the preference shares (“Alibaba Group Preference
`Shares”) of Alibaba Group Holding Limited (“Alibaba Group”). Investments in both fixed rate and floating rate interest earning
`instruments carry a degree of interest rate risk. Fixed rate securities may have their fair value adversely impacted due to a rise in
`interest rates, while floating rate securities may produce less income than expected if interest rates fall. Fixed income securities
`may have their fair value adversely impacted due to a deterioration of the credit quality of the issuer. The longer the term of the
`securities, the more susceptible they are to changes in market rates. Investments are reviewed periodically to identify possible
`other-than-temporary impairment. The Company has no current requirement or intent to sell the securities in an unrealized loss
`position. The Company expects to recover up to (or beyond) the initial cost of investment for securities held.
`
`The Company’s investment in the Alibaba Group Preference Shares is presented as an asset carried at fair value on the
`Company’s condensed consolidated balance sheets. To estimate the fair value, the Company performed benchmarking by
`comparing the terms and conditions of the Alibaba Group Preference Shares to dividend rates, subordination terms, and credit
`ratings of those of similar type instruments. As of both December 31, 2012 and March 31, 2013, the carrying value of the Alibaba
`Group Preference Shares approximates the fair value. As of December 31, 2012, the total fair value of the Alibaba Group
`Preferences Shares was $822 million and includes $6 million of accrued dividend income recorded within prepaid expenses and
`other current assets and $16 million of accrued dividend income recorded as part of the carrying value of the Alibaba Group
`Preference Shares. As of March 31, 2013, the total fair value of the Alibaba Group Preferences Shares was $831 million. Of the
`$831 million, $31 million was cumulative accrued dividend income recorded as part of the carrying value of the Alibaba Group
`Preference Shares. For the three months ended March 31, 2013, the Company received a cash dividend payment from Alibaba
`Group of approximately $12 million related to the Alibaba Group Preference Shares.
`
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`10-Q
`
`The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value
`hierarchy as of December 31, 2012 (in thousands):
`
`
`Fair Value Measurements at Reporting Date Using
`
`
`Total
`Level 1
`
`Level 2
`
`
`Level 3
`
`
` $685,707 $
`— $ — $ 685,707
`
`
`
`
` 2,464,227
`
`—
` 2,464,227
`—
`
`
`
`892,769
`
`—
`
`892,769
`—
`
`
` 1,298,123
`
`—
` 1,298,123
`—
`
`
`
`84,555
`
`—
`
`84,555
`—
`
`
`
`816,261
`
`—
`
`—
` 816,261
`
`
`197
`
`197
`
`—
`
`—
`
`
`5,007
`
`—
`
`5,007
`
`—
`
` $685,904 $4,744,681 $816,261 $6,246,846
`
`
`
`
`
`
`
`
`(6,662)
`—
`(6,662)
`—
`
` $685,904 $4,738,019 $816,261 $6,240,184
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Assets
`Money market funds
`(1)
`Available-for-sale securities:
`Government and agency securities
`(1)
`Commercial paper and bank certificates of deposit
`(1)
`Corporate debt securities
`(1)
`Time deposits
`Alibaba Group Preference Shares
`Corporate equity securities
`(2)
`Foreign currency derivative contracts
`(3)
`Available-for-sale securities at fair value
`
`Liabilities
`Foreign currency derivative contracts
`(3)
`Total assets and liabilities at fair value
`
`The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value
`hierarchy as of March 31, 2013 (in thousands):
`
`
`
`
`
`
`
`
`
`Assets
`Money market funds
`(1)
`Available-for-sale securities:
`Government and agency securities
`(1)
`Commercial paper and bank certificates of deposit
`(1)
`Corporate debt securities
`(1)
`Time deposits
`Alibaba Group Preference Shares
`Corporate equity securities
`(2)
`Foreign currency derivative contracts
`(3)
`Available-for-sale securities at fair value
`
`
`
`
`
`
`
`(3)
`
`
`The amount of cash and cash equivalents as of December 31, 2012 and March 31, 2013 included $597 million and $583
`million, respectively, in cash deposits.
`
`The fair values of the Company’s Level 1 financial assets and liabilities are based on quoted market prices of the identical
`underlying security. The fair values of the Company’s Level 2 financial assets and liabilities are obtained from readily-available
`pricing sources for the identical underlying security that may not be actively traded. The Company utilizes a pricing service to
`assist in obtaining fair value pricing for the majority of this investment portfolio. The Company classifies its investment in the
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`Fair Value Measurements at Reporting Date Using
`
`
`Total
`Level 1
`
`Level 2
`
`
`Level 3
`
`
` $261,137 $
`— $ — $ 261,137
`
`
`
`
` 1,537,897
`
`—
` 1,537,897
`—
`
`
`
`771,441
`
`—
`
`771,441
`—
`
`
` 2,161,370
`
`—
` 2,1