Yahoo 2012 Annual Report Download

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2012 ANNUAL REPORT

Table of contents

  • Page 1
    2 01 2 A N N UA L R E PO R T

  • Page 2

  • Page 3
    ...or stock quotes. We are committed to bringing users the best products and the most immersive digital experiences, personalized to their interests, across screens and platforms. This focus on product excellence is key to engaging even more users, delivering value for our partners and advertisers, and...

  • Page 4
    We believe that our commitment to the people who work at Yahoo! will have long-lasting benefits for our users, advertisers, partners, and shareholders.

  • Page 5
    ... our history - including Mail, Search, News, Sports, Finance, Groups, and Answers. Last year, we made early progress in enhancing these products with a new design for Yahoo! Mail across four key platforms - desktop, iOS, Android, and Windows 8 - as well as the launch of our Flickr mobile application...

  • Page 6
    ... immigration reform on their Yahoo! news stream, or local weather forecasts that integrate Flickr images of their favorite places around the world. We're creating products that get smarter about our users' interests and deliver more relevant content with every use. And as mobile continues to become...

  • Page 7
    4 - 5 2012 Annual Report ONE Billion Clicks The news carousel at the top of Yahoo.com receives 1 billion clicks every month.

  • Page 8
    6 - 7 2012 Annual Report 150 Million Users Coverage of the London Games on Yahoo! Sports resulted in more than 3 billion pageviews and more than 150 million unique users globally. Photo by Nasos Zovoilis from the Flickr Collection

  • Page 9
    ...iOS, Android, and Windows 8. The new Yahoo! Mail is faster and easier to use. This is good news for the 105 million users who send, on average, 91 million emails and 23 million attachments every day. We also launched a new Flickr iOS app that has been hailed as one of the best mobile photo apps. The...

  • Page 10
    .... "We're accelerating mobile product development. Our total number of unique mobile users more than doubled in an 18-month period. We believe the potential is immense." - Guy Hepworth Sr. Global Product Manager, Yahoo! Mobile The new Flickr app lets users explore 8 billion photos from around the...

  • Page 11
    8 - 9 2012 Annual Report 300M Mobile Users In February 2013, there were more than 300 million unique monthly mobile users on Yahoo!.

  • Page 12
    12 - 11 2012 Annual Report 50 Original Shows Yahoo! produces and distributes more than 50 original video shows, two of which were co-produced with partners and have successfully crossed from Web to TV - Burning Love and Cybergeddon.

  • Page 13
    ... to strong partnerships Yahoo!'s partnerships enable us to enrich and expand user experiences, access key technologies, and build value-enhancing relationships. Yahoo! helps advertisers, publishers, and partners embrace the digital opportunity. We're an important choice in the market due to...

  • Page 14
    The future is incredibly bright

  • Page 15
    ... 12b-2 of the Exchange Act). Yes ' No Í As of June 29, 2012, the last business day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the closing sales price for the Registrant's common...

  • Page 16
    ... and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...PART IV Exhibits, Financial...

  • Page 17
    ...Websites and other offerings, "Affiliate sites"). We generate revenue principally from display advertising on Yahoo! Properties and some Affiliate sites and from search advertising on Yahoo! Properties and Affiliate sites. Additionally, we generate revenue from other sources including listings-based...

  • Page 18
    ... from Yahoo! and other online sources to help marketers more directly target the audiences who matter most to their businesses. • Content Partnerships. We signed a number of deals to bring our users the most compelling content on the Web, across categories and devices. We announced cross-platform...

  • Page 19
    ...online. Yahoo! currently offers Yahoo! Search experiences and applications across connected devices, including PCs, tablets and mobile phones. Yahoo! News provides original, premium, partner, and syndicated news via text, photos, and video to engage users with wide-ranging, up-to-the-minute coverage...

  • Page 20
    ...as an interface free of display advertising. Yahoo! Mail is available on PCs, mobile phones and tablets. Yahoo! Messenger is an instant messaging service that provides an interactive and personalized way for users to connect, communicate and share experiences on a real-time basis. Yahoo! also offers...

  • Page 21
    ...interfaces ("APIs") and tools to grow partner businesses. With these offerings, publishers are able to participate in the Yahoo! Search and Bing Unified Search Marketplaces as well as the Right Media Exchange for display advertising. We generate revenue by providing marketing services to advertisers...

  • Page 22
    ... software and application development. We believe that our open platforms enable developers and partners to build and incorporate new products and innovations that users want into their daily experiences. We are committed to providing the developer community with solutions that solve their problems...

  • Page 23
    ...and product talent and support a large portion of the Yahoo! product portfolio and technology infrastructure. Our product teams have expertise in consumer applications (Web/Mobile), scalable software platforms, information retrieval, machine learning and science, editorial, networking/communications...

  • Page 24
    ... the Search Agreement with Microsoft, our field advertising team also sells search advertising to premium advertisers in transitioned markets. Our midmarket channel sells our services to medium-sized businesses, while our reseller/small business channel enables us to sell advertising services to...

  • Page 25
    ...of the online services that we offer; the quality, personalization, and presentation of our search results; and the overall user experience on our leading premium content properties and other Yahoo! Properties. Our principal competitive strengths relating to attracting advertisers and publishers are...

  • Page 26
    ...and services that directly compete for users with our offerings, including e-mail, search, sports, news and finance. Similarly, the advertising networks operated by our competitors or by other participants in the display marketplace offer advertising exchanges, ad networks, demand side platforms, ad...

  • Page 27
    ... product development, build data centers or acquire real property, and acquire and integrate complementary businesses and technologies. Our operating costs might also increase if we do not effectively manage costs as we transition markets under the Search Agreement and reimbursements from Microsoft...

  • Page 28
    ... we may receive, our competitors may increase revenue, profitability, and market share at a higher rate than us. More people are using devices other than a PC to access the Internet and are accessing new platforms to make search queries, and versions of our services developed for these devices might...

  • Page 29
    ...and platforms, or to earn adequate margins on revenues derived from these products and services, we will fail to capture opportunities as consumers and advertisers transition to a dynamic, multi-screen environment. A key to our strategy is focusing on mobile devices. If we are unable to generate and...

  • Page 30
    ... a number of factors such as service outages, product malfunctions, data protection and security issues, exploitation of our trademarks by others without permission, and poor presentation or integration of our search marketing offerings by Affiliates on their sites or in their software and services...

  • Page 31
    ... to make, infringement and related claims against us over the display of content or search results triggered by search terms, including the display of advertising, that include trademark terms. As we expand our business and develop new technologies, products and services, we may become increasingly...

  • Page 32
    ... and international laws and regulations to us relating to issues such as user privacy and data protection, security, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, billing, real estate, consumer protection, accessibility, content regulation, quality of services, law...

  • Page 33
    ... markets where our products and services are offered. Any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state, or international privacy, data-retention or data-protection-related laws, regulations, orders...

  • Page 34
    ...implementation of network security measures, our servers are vulnerable to computer viruses, worms, hacking, physical and electronic break-ins, router disruption, sabotage or espionage, and other disruptions from unauthorized access and tampering, as well as coordinated denial-of-service attacks. We...

  • Page 35
    ... to third-party publishers and advertising networks, and we offer third-party products, services, or content, such as stock quotes and trading information, under the Yahoo! brand or via distribution on Yahoo! Properties. We may be subject to claims concerning these products, services, or content by...

  • Page 36
    ...further develop an acquired business or technology and any resulting impairment of amounts currently capitalized as intangible assets; • the failure of strategic investments to perform as expected; • the potential for patent and trademark infringement and data privacy and security claims against...

  • Page 37
    ... to manage expansion of user-facing services and to respond to rapid technological change could adversely affect our business. As some of the most visited sites on the Internet, Yahoo! Properties deliver a significant number of products, services, page views, and advertising impressions to users...

  • Page 38
    ...search and display advertising relationships with Affiliate sites, which integrate our advertising offerings into their Websites. • We enter into distribution alliances with Internet service providers (including providers of cable and broadband Internet access) and software distributors to promote...

  • Page 39
    ... is derived from fees paid by advertisers in connection with the display of graphical advertisements or clicks on search advertisements on Web pages. As a result, the adoption of such technologies, tools, software, and applications could reduce the number of display and search advertisements that we...

  • Page 40
    ... of unfavorable movements in foreign currency exchange rates. Any losses on these instruments that we experience may adversely impact our financial results, cash flows and financial condition. See Item 7A-"Quantitative and Qualitative Disclosures About Market Risk" of this Annual Report. We may be...

  • Page 41
    ... performance and equity valuation of Alibaba Group and Yahoo Japan Corporation in which we have equity investments, including changes in equity valuation due to fluctuations in foreign currency exchange rates. In addition, the stock market in general, and the market prices for companies in our...

  • Page 42
    ... Washington, D.C. Our data centers are operated in locations in the United States, Brazil, Europe, and Asia. We believe that our existing facilities are adequate to meet current requirements, and that suitable... is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 28

  • Page 43
    ... of Equity Securities Share repurchase activity during the three months ended December 31, 2012 was as follows: Total Number of Shares Purchased as Part of a Publicly Announced Program Period Total Number of Shares Purchased(*) Average Price Paid per Share Approximate Dollar Value of Shares that...

  • Page 44
    ... 31, 2010, December 31, 2011, and December 31, 2012. The graph assumes that $100 was invested at the market close on December 31, 2007 in the common stock of Yahoo!, the NASDAQ 100 Index, the SPGIINTR, and the S&P 500 Index and assumes reinvestment of any dividends. The stock price performance on...

  • Page 45
    ... Shares ...$ - $ - $ - $ - $ 4,603,322 (3) Our net income attributable to Yahoo! Inc. for the year ended December 31, 2008 included a non-cash gain of $401 million, net of tax, related to Alibaba Group's initial public offering ("IPO") of Alibaba.com Limited ("Alibaba.com"), the business...

  • Page 46
    ...Yahoo! Inc., or $2.15 per basic share and $2.13 per diluted share, for the year ended December 31, 2012. (6) (7) Consolidated Balance Sheets Data: December 31, 2008(1) 2009 2010 (In thousands) 2011 2012(2) Cash and cash equivalents ...Marketable debt securities ...Alibaba Group Preference Shares...

  • Page 47
    ... of products and services, many of them personalized, including search, content, and communications tools-all daily habits for hundreds of millions of users, on the Web and on mobile devices. We create value for advertisers and their brands by connecting them with targeted audiences of users through...

  • Page 48
    ... integrate our advertising offerings into their Websites or other offerings (those Websites and other offerings, "Affiliate sites"). Our offerings to users on Yahoo! Properties currently fall into four categories: Yahoo.com; Communications; User-Generated Content; and Mobile & Emerging Products. The...

  • Page 49
    ...-2012 % Change Net income attributable to Yahoo! Inc...$1,231,663 $1,048,827 $ 3,945,479 Costs associated with the Korea business and its closure ...- - 99,485 Deal-related costs related to the sale of Alibaba shares ...- - 6,500 Depreciation and amortization ...656,396 625,864 649,267 Stock-based...

  • Page 50
    ... Yahoo! Properties. Based on the terms of the Search Agreement with Microsoft described under "Significant Transactions" below, Microsoft retains a revenue share of 12 percent of the net (after TAC) search revenue generated on Yahoo! Properties and Affiliate sites in transitioned markets. We report...

  • Page 51
    ...benefits from stock-based awards), less acquisition of property and equipment, net and dividends received from equity investees. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after...

  • Page 52
    ...of paid search advertisers and publishers to Microsoft's platform are being done on a market by market basis. During the first five years of the Search Agreement, in transitioned markets we are entitled to receive 88 percent of the revenue generated from Microsoft's services on Yahoo! Properties. We...

  • Page 53
    ...cost structure. We completed the transition of our algorithmic and paid search platforms to the Microsoft platform in the U.S. and Canada in the fourth quarter of 2010. In 2011, we completed the transition of algorithmic search in all other markets and the transition of paid search in India. In 2012...

  • Page 54
    ... 2010 Years Ended December 31, 2011 2012 (dollars in thousands) 2010-2011 % Change 2011-2012 % Change Revenue for groups of similar services: Display ...Search ...Other ...Total revenue ...Cost of revenue-TAC ...Cost of revenue-other ...Sales and marketing ...Product development ...General...

  • Page 55
    .... Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment. Prior to 2012, marketing and customer advocacy costs...

  • Page 56
    ...and Affiliate sites. Search revenue is recognized based on Paid Clicks. A Paid Click occurs when an end-user clicks on a sponsored listing on Yahoo! Properties or Affiliate sites for which an advertiser pays on a per click basis. Under the Search Agreement with Microsoft, in the transitioned markets...

  • Page 57
    ... and India. "Paid Clicks" are defined as the total number of times an end-user clicks on a sponsored listing on Yahoo! Properties and Affiliate sites for which an advertiser pays on a per click basis. "Price-per-Click" is defined as search revenue divided by our Paid Clicks. Although Paid Clicks and...

  • Page 58
    ...TAC declined due to the revenue share with Microsoft associated with the Search Agreement. Display revenue ex-TAC on Yahoo! Properties also declined due to a decrease in guaranteed advertising related to a decline in supply which was partially offset by increased pricing. EMEA revenue ex-TAC for the...

  • Page 59
    ... increased $79 million, or 11 percent, compared to 2010. The increase in Asia Pacific revenue ex-TAC was primarily driven by an increase in our display advertising business, fee-based services and the favorable effects of foreign currency exchange rate fluctuations. Revenue ex-TAC in Asia Pacific...

  • Page 60
    ... Search Markets and All Display Markets TAC consists of payments made to third-party entities that have integrated our advertising offerings into their Websites or other offerings and payments made to companies that direct consumer and business traffic to Yahoo! Properties. We enter into agreements...

  • Page 61
    ...based awards in the year ended December 31, 2011, compared to 2010. General and Administrative General and administrative expenses consist primarily of compensation-related expenses (including stock-based compensation expense) related to other corporate departments and fees for professional services...

  • Page 62
    ... to Plans Prior to Plans Prior to Restructuring Korea Business 2012 2012 2012 Plan Closure Total Employee severance pay and related costs ...Non-cancelable lease, contract terminations, and other charges ...Other non-cash charges, net ...Sub-total before (reversals) accelerations of stock-based...

  • Page 63
    ... by changes to original estimates of $33 million in severance related costs recognized throughout 2012, primarily as a result of redeployments and voluntary resignations of employees prior to their planned severance dates and a $3 million credit related to non-cash stock-based compensation expense...

  • Page 64
    Interest and investment income consists of income earned from cash in bank accounts, investments made in marketable debt securities, money market funds, and dividend income on the Alibaba Group Preference Shares. In February 2010, we sold Zimbra, Inc., for net proceeds of $100 million and recorded a...

  • Page 65
    ...quarter of 2012 for Alibaba Group. Going forward we will record our share of the results of Alibaba Group in the consolidated statements of income based on a reduced percentage of ownership of 24 percent. Earnings in equity interests increased during the year ended December 31, 2011 compared to 2010...

  • Page 66
    ...meet our operating needs. As of December 31, 2012, we had cash, cash equivalents, and marketable debt securities totaling $6.0 billion, compared to $2.5 billion as of December 31, 2011. The increase was due to cash proceeds, net of fees, of $6.2 billion received from the sale of Alibaba Group Shares...

  • Page 67
    ... to high-credit quality European sovereign debt securities. We currently hedge our net investment in Yahoo Japan with forward contracts to reduce the risk that our investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. The forward contracts are required...

  • Page 68
    ... purchases and internal development of software to support our offerings and our increased number of users as well as the build out of our owned and operated data centers. During the year ended December 31, 2012, we utilized approximately $2.4 billion for net purchases of marketable debt securities...

  • Page 69
    ... in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan. During the year ended December 31, 2012, we repurchased approximately 126 million shares of our common stock under the June 2010 and May 2012 stock repurchase...

  • Page 70
    ... to make minimum payments under contracts to provide sponsored search and/or display advertising services to our Affiliates, which represent TAC. We are obligated to make payments under various arrangements with vendors and other business partners, principally for marketing, bandwidth, and content...

  • Page 71
    ... advertisements and search revenue is generated from the display of text-based links to an advertiser's Website and from revenue sharing arrangements with partners for search technology and services. Other revenue consists of listings-based services revenue, transaction revenue, and fees revenue...

  • Page 72
    ...risk-free rate of return and the return an outside investor would expect to earn based on the overall level of inherent risk. The determination of expected returns includes consideration of the beta (a measure of risk) of traded securities of comparable companies and risk premiums of reporting units...

  • Page 73
    ... for the year ended December 31, 2012 was based on a market-based implied volatility. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if...

  • Page 74
    ...-credit corporate issuers which are classified as marketable debt securities and cash equivalents. Investments in fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise...

  • Page 75
    ..., 2) balance sheet, and 3) translation. Net Investment Exposure. In December 2012, we began hedging, on an after-tax basis, our net investment in Yahoo Japan with forward contracts to reduce the risk that our investment in Yahoo Japan will be adversely affected by foreign currency exchange rate...

  • Page 76
    ... local countries. Primary currencies include Australian dollars, British pounds, Euros, Japanese yen, Korean won, and Taiwan dollars. The statements of income of our international operations are translated into U.S. dollars at exchange rates indicative of market rates during each applicable period...

  • Page 77
    ... and Supplementary Data Page Index to Consolidated Financial Statements Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2011 and 2012 ...Consolidated Statements of Income for each of the three years in the...

  • Page 78
    ... schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain...

  • Page 79
    ...-term marketable debt securities ...Accounts receivable, net of allowance of $30,142 and $32,635 as of December 31, 2011 and 2012, respectively ...Prepaid expenses and other current assets ...Total current assets ...Long-term marketable debt securities ...Alibaba Group Preference Shares ...Property...

  • Page 80
    ...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 ...Restructuring...

  • Page 81
    ... net of taxes of $116, $(648), and $(5,197) for 2010, 2011, and 2012, 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...

  • Page 82
    ... of common stock ...Tax withholdings related to net share settlements of restricted stock awards ...Retirement of treasury stock ...Balance, end of year ...Retained earnings Balance, beginning of year ...Net income attributable to Yahoo! Inc...Retirement of treasury stock ...Balance, end of...

  • Page 83
    ... income related to Alibaba Group Preference Shares ...Tax benefits (detriments) from stock-based awards ...Excess tax benefits from stock-based awards ...Deferred income taxes ...Earnings in equity interests ...Dividends received from Yahoo Japan ...Gain from sale of Alibaba Group Shares ...(Gain...

  • Page 84
    ..., and communication tools-all daily habits for hundreds of millions of users, on the Web and on mobile devices. The majority of the Company's product offerings are available in more than 45 languages and in 60 countries, regions, and territories. The Company creates value for advertisers and their...

  • Page 85
    ...of the accounts receivable balance and no one customer accounted for 10 percent or more of the Company's revenue for 2010, 2011, or 2012. Revenue under the Company's Search and Advertising Services and Sales Agreement (the "Search Agreement") with Microsoft Corporation ("Microsoft") represented more...

  • Page 86
    ... estimated useful lives of the assets, generally three to five years. Property and equipment to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on...

  • Page 87
    ..., and $24 million, respectively, of stock-based compensation expense in the years ended December 31, 2010, 2011, and 2012. Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not...

  • Page 88
    ... advertising offerings into their Websites or other offerings and payments made to companies that direct consumer and business traffic to Yahoo! Properties. The display revenue derived from these arrangements that involve traffic supplied by Affiliates is reported gross of the TAC paid to Affiliates...

  • Page 89
    ... on Yahoo! Properties and Affiliate sites. Search revenue is recognized based on Paid Clicks. A Paid Click occurs when a user clicks on a sponsored listing on Yahoo! Properties and Affiliate sites for which an advertiser pays on a per click basis. The Company's Search Agreement with Microsoft...

  • Page 90
    ... common stock is a better indicator of expected volatility and future stock price trends than historical volatility. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application...

  • Page 91
    ...December 31, 2012 Gross Gross Unrealized Unrealized Gains Losses Estimated Fair Value Government and agency securities ...$1,312,876 Corporate debt securities, commercial paper, and bank certificates of deposit ...2,039,809 Corporate equity securities ...230 Alibaba Group Preference Shares ...816...

  • Page 92
    ..., and preference shares. 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 market value adversely impacted due to a rise in interest rates, while floating rate securities may produce...

  • Page 93
    ... 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 December 31, 2012, the total fair value...

  • Page 94
    ... instruments. The credit rating of Alibaba Group Holding Limited ("Alibaba Group"), general business conditions, and market rates could materially affect the fair value of the Alibaba Group Preference Shares. The Company conducts reviews on a quarterly basis to verify pricing, assess liquidity, and...

  • Page 95
    ...in thousands): 2011 2012 Accrued content, connection, traffic acquisition, and other costs ...Deferred income taxes ...Accrued compensation and related expenses ...Accrued taxes payable ...Accrued professional service expenses ...Accrued sales and marketing related expenses ...Accrued restructuring...

  • Page 96
    ...): 2011 2012 Unrealized (losses) gains on available-for-sale securities, net of tax ...Foreign currency translation, ...earned from cash in bank accounts and investments made in marketable debt securities, money market funds, and dividend income on the Alibaba Group Preference Shares. In February 2010...

  • Page 97
    ...Korea business closure CTA reclassification ...Alibaba Group Initial Repurchase related CTA reclassification, net of $68 million in tax ...Total foreign currency translation adjustments, net of tax ...Total reclassifications for the period ...Note 4 ACQUISITIONS $ 9,088 Yahoo!'s share of earnings...

  • Page 98
    ... options are exercisable for shares of Yahoo! common stock. The total purchase price of $259 million consisted of cash consideration. In connection with the acquisition, the Company issued stock-based awards valued at $9 million which is being recognized as stock-based compensation expense as the...

  • Page 99
    ... to goodwill and $1 million to cash acquired. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The Company's business combinations completed in 2012 did not have a material impact on...

  • Page 100
    ...'s 1996 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"). The Company calculates potential tax windfalls and shortfalls by including the impact of pro forma deferred tax assets. The Company takes into account the effect on consolidated net income per share of dilutive securities of...

  • Page 101
    ...Company acquired approximately 46 percent of the outstanding common stock of the Alibaba Group, which represented approximately 40 percent on a fully diluted basis, in exchange for $1.0 billion in cash, the contribution of the Company's China-based businesses ("Yahoo! China"), and direct transaction...

  • Page 102
    ...'s consolidated balance sheets. The Company's accounting policy is to record its share of the results of Alibaba Group, and any related amortization expense, one quarter in arrears, within earnings in equity interests in the consolidated statements of income. As of December 31, 2012, Alibaba Group...

  • Page 103
    ... events. The Alibaba Group Preference Shares are classified as available for sale securities. The Repurchase Agreement provides that at the time Alibaba Group completes an initial public offering meeting certain specified criteria (a "Qualified IPO"), Yahoo! and YHK will sell, at Alibaba Group...

  • Page 104
    ...the Yahoo Japan investee. The fair value of the Company's ownership in the common stock of Yahoo Japan, based on the quoted stock price, was approximately $7 billion as of December 31, 2012. During the years ended December 31, 2010, 2011 and 2012, the Company received cash dividends from Yahoo Japan...

  • Page 105
    .... In December 2012, the Company started hedging, on an after-tax basis, its net investment in Yahoo Japan with forward contracts to reduce the risk that its investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. The forward contracts have maturities...

  • Page 106
    ... term: (i) renewal of the lease for a defined number of years at the then fair market rental rate or at a slight discount to the fair market rental rate; (ii) purchase of the property at the then fair market value; or (iii) right of first offer to lease additional space that becomes available. 92

  • Page 107
    ... non-cancelable arrangements with vendors and other business partners, principally for marketing, bandwidth, co-location, and content arrangements. As of December 31, 2012, these commitments totaled $178 million, of which $98 million will be payable in 2013, $34 million will be payable in 2014...

  • Page 108
    ... related to employment matters, and a variety of other claims, including claims alleging defamation, invasion of privacy, or similar claims arising in connection with the Company's e-mail, message boards, photo and video sites, auction sites, shopping services, and other communications and community...

  • Page 109
    ... Holdings, Inc., and Yahoo Hispanic Americas LLC. The complaint alleged claims of breach of contract, breach of promise, and lost profits in connection with various commercial contracts entered into among the parties between 2002 and 2004, relating to a business listings service, and alleged total...

  • Page 110
    ..., awards, and employee stock purchase plan. In June 2010, the Board authorized a stock repurchase program allowing the Company to repurchase up to $3 billion of its outstanding shares of common stock from time to time. That repurchase program, which by its terms, would have expired in June 2013...

  • Page 111
    ... years). Restricted stock award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company's common stock. Such value is recognized as an expense over the corresponding service period. The 1995 Stock Plan provides for...

  • Page 112
    ... compensation subject to certain Internal Revenue Code limitations. Prior to November 2012, the price of common stock purchased under the plan was equal to 85 percent of the lower of the fair market value of the common stock on the commencement date of each 24-month offering period or the specified...

  • Page 113
    ...acquisitions had expected lives of less than 4 years. (5) Assumptions for the Employee Stock Purchase Plan relate to the annual average of the enrollment periods. During the year ended December 31, 2012, enrollment was permitted in May and November of each year. Beginning in 2013, enrollment will be...

  • Page 114
    ... of these vested restricted stock awards were net share settled. The Company withheld 3.9 million shares based upon the Company's closing stock price on the vesting date to settle the employees' minimum statutory obligation for the applicable income and other employment taxes. The Company then...

  • Page 115
    ... with the Restructuring Plans Prior to 2012, the Q2'12 Restructuring Plan, and the Q4'12 Korea Business Closure. These charges include employee severance pay and related costs, accelerations and reversals of stock-based compensation expense, facility restructuring costs, contract termination and...

  • Page 116
    ... to to Restructuring Business 2012 2012 2012 Plan Closure Total Employee severance pay and related costs ...Non-cancelable lease, contract terminations, and other charges . . Other non-cash charges, net ...Sub-total before (reversals) accelerations of stock-based compensation expense ...(Reversals...

  • Page 117
    Restructuring Plans Prior to 2012. Prior to 2012, the Company implemented workforce reductions, a strategic realignment, and consolidation of certain real estate facilities and data centers to reduce its cost structure, align resources with its product strategy, and improve efficiency. During the ...

  • Page 118
    ...(in thousands): Restructuring Plans Prior to 2012 Q2'12 Restructuring Plan Q4'12 Korea Business Closure Total Balance as of January 1, 2011 ...Employee severance pay and related costs ...Non-cash reversals of stock-based compensation expense ...Non-cancelable lease, contract termination, and other...

  • Page 119
    ...income taxes and earnings in equity interests as follows (in thousands): Years Ended December 31, 2010 2011 2012 Income tax at the U.S. federal statutory rate of 35 percent ...State income taxes, net of federal benefit ...Change in valuation allowance ...Stock-based compensation expense ...Research...

  • Page 120
    ... Internal Revenue Code and applicable ...employee stock options are not recorded on the Company's consolidated balance sheets and are accounted...planning, and forecasts of future taxable income on a jurisdiction by jurisdiction basis. The valuation allowance as of December 31, 2012 relates to foreign...

  • Page 121
    ... months ended December 31, 2012 since the foreign tax credits associated with the distribution are greater than the tax due on the distribution of the foreign earnings. The remaining undistributed foreign earnings of approximately $2 billion, principally related to Yahoo Japan, will continue to be...

  • Page 122
    ... PARTY TRANSACTIONS Revenue from related parties, excluding Yahoo Japan and Alibaba Group, represented approximately 1 percent of total revenue for the years ended December 31, 2010, 2011, and 2012. Management believes that the terms of the agreements with these related parties are comparable to...

  • Page 123
    .... Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment. Prior to 2012, marketing and customer advocacy costs...

  • Page 124
    ... meeting certain spending or other criteria, advertising agencies that specialize in or offer search engine marketing services and their clients, and resellers and their clients seeking assistance with their paid search accounts. The term of the Search Agreement is 10 years from February 23, 2010...

  • Page 125
    ... 31, 2012, respectively. Under the Search Agreement, for each market, Microsoft generally guarantees Yahoo!'s revenue per search ("RPS Guarantee") on Yahoo! Properties only for 18 months after the transition of paid search services to Microsoft's platform in that market. In the fourth quarter of...

  • Page 126
    ... by the Company related to the Search Agreement. Of that amount, $5 million had not been received from Microsoft and was classified as part of prepaid expenses and other current assets on the Company's consolidated balance sheets as of December 31, 2012. Note 19 SUBSEQUENT EVENTS Stock Repurchase...

  • Page 127
    ... at Beginning of Year Write-Offs Charged to Net of, Expenses Recoveries (In thousands) Balance at End of Year Accounts receivable Allowance for doubtful accounts 2010 ...2011 ...2012 ... 41,003 22,975 30,142 Balance at Beginning of Year 4,944 18,147 12,868 (22,972) 22,975 (10,980) 30,142 (10...

  • Page 128
    ... restructuring charges of $11 million. Net income attributable to Yahoo! Inc. for the quarter ended June 30, 2011 includes Yahoo!'s share of the non-cash loss related to impairments of assets held by Yahoo Japan, which is included in earnings in equity interests of $7 million and net restructuring...

  • Page 129
    ...$25 million and pre-tax gain of $4.6 billion related to the sale of Alibaba Group Shares, which is included in other income, net. Net income attributable to Yahoo! Inc. for the quarter ended December 31, 2012 includes a one-time distribution of foreign earnings resulting in an overall net benefit of...

  • Page 130
    ...!'s Proxy Statement for its 2013 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2012. In addition, the Board has adopted a code of ethics, which is posted on the Company's website at www.yahoo.com. The code of ethics may be...

  • Page 131
    ... Financial Statements: Page Index To Consolidated Financial Statements Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2011 and 2012 ...Consolidated Statements of Income for each of the three years in the...

  • Page 132
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of February 2013. YAHOO! INC. By: /S/ KEN GOLDMAN Ken Goldman Chief Financial Officer Power of Attorney KNOW ALL...

  • Page 133
    ... Title Date /S/ THOMAS J. MCINERNEY Thomas J. McInerney Director February 28, 2013 /S/ MAYNARD G. WEBB, JR. Maynard G. Webb, Jr. Director February 28, 2013 /S/ HARRY L. WILSON Harry L. Wilson Director February 28, 2013 /S/ MICHAEL J. WOLF Michael J. Wolf Director February 28...

  • Page 134
    ... Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed May 24, 2012 and incorporated herein by reference). First Amendment to Share Repurchase and Preference Share Sale Agreement, by and between Alibaba Group Holding Limited, the Registrant, and Yahoo! Hong Kong Holdings Limited, dated as...

  • Page 135
    ... by reference). Form of Second Letter Amendment (2012) to Performance Restricted Stock Unit Award Agreement (2010 AFP version) under the Yahoo! Inc. 1995 Stock Plan (previously filed as Exhibit 10.2(M) to the Registrant's Annual Report on Form 10-K filed February 29, 2012 and incorporated herein by...

  • Page 136
    ...and incorporated herein by reference). First Amendment to Search and Advertising Services and Sales Agreement, dated as of July 14, 2010, by and between the Registrant and Microsoft Corporation (previously filed as Exhibit 10.18(D) to the Registrant's Quarterly Report on Form 10-Q filed May 10, 2011...

  • Page 137
    ...). Employment Offer letter, dated October 27, 2010, between the Registrant and Ross Levinsohn (previously filed as Exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q filed May 10, 2011 and incorporated herein by reference). Notice of Stock Option Grant and Stock Option Award Agreement...

  • Page 138
    ... Marissa A. Mayer. Performance Stock Option Agreement (Annual Grant), including Notice of Performance Stock Option Grant, dated November 29, 2012, between the Registrant and Marissa A. Mayer. Employment Offer Letter, dated September 23, 2012, between the Registrant and Ken Goldman (previously filed...

  • Page 139
    ... October 22, 2012 and incorporated herein by reference). List of Subsidiaries. Consent of Independent Registered Public Accounting Firm. Power of Attorney (see the signature page of this Annual Report on Form 10-K.) Certificate of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a...

  • Page 140
    ... Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Marissa A. Mayer, certify that: 1. 2. I have reviewed this Form 10-K of Yahoo! Inc.; Based on my knowledge, this report...

  • Page 141
    ... Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Ken Goldman, certify that: 1. 2. I have reviewed this Form 10-K of Yahoo! Inc.; Based on my knowledge, this report does...

  • Page 142
    ...of 2002 In connection with the Annual Report on Form 10-K of Yahoo! Inc. (the "Company") for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Marissa A. Mayer, as Chief Executive Officer of the Company, and Ken Goldman, as Chief...

  • Page 143
    ... RELATIONS 701 First Avenue Sunnyvale, CA 94089 A copy of this report can be found online at: investor.yahoo.net ©2013 Yahoo! All rights reserved. Yahoo!, Y!, IntoNow, interclick, Flickr, Right Media, omg!, Shine, Sportacular, Cocktails, Mojito, Genome, Stamped, Rivals, MarketDash, Yahoo! Search...

  • Page 144
    www.yahoo.com Photo by Boy_Wonder from the Flickr Collection