Yahoo 2012 Annual Report Download - page 103

Initial Repurchase by Alibaba Group. On September 18, 2012 (the “Repurchase Closing Date”), Alibaba Group
repurchased 523 million of the 1,047 million Alibaba Group Shares owned by the Company (the “Initial
Repurchase”). The Initial Repurchase was made pursuant to the terms of the Share Repurchase and Preference
Share Sale Agreement entered into by Yahoo! Inc., Alibaba Group and Yahoo! Hong Kong Holdings Limited, a
Hong Kong corporation and wholly-owned subsidiary of Yahoo! Inc. (“YHK”) on May 20, 2012 (as amended on
September 11, 2012, the “Repurchase Agreement”). Yahoo! received $13.54 per Share, or approximately $7.1
billion in total consideration, for the 523 million Shares sold to Alibaba Group. Approximately $6.3 billion of the
consideration was received in cash and $800 million was received in Alibaba Group Preference Shares. The
Initial Repurchase resulted in a pre-tax gain of approximately $4.6 billion for the year ended December 31, 2012.
The Company will continue to account for its remaining approximately 24 percent ownership interest in Alibaba
Group under the equity method.
The Alibaba Group Preference Shares yield semi-annual dividends at a rate per annum of up to 10 percent, with
at least 3 percent payable in cash and the remainder accruing and resulting in an increase to the liquidation
preference. The dividend rate is subject to certain adjustments. The Alibaba Group Preference Shares will be
freely transferable by Yahoo! after 18 months from the Repurchase Closing Date, are callable by Alibaba Group
at any time at the liquidation preference, will not be convertible, and are mandatorily redeemable at the
liquidation preference (including accrued dividends) by Alibaba Group on the earlier of the tenth anniversary of
the Repurchase Closing Date and the occurrence of certain specified 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’s election (either
directly to Alibaba Group or in the Qualified IPO), up to 261.5 million of their remaining Shares. If Shares are
sold back to Alibaba Group in the Qualified IPO, the purchase price per Share will be equal to the per share price
in the Qualified IPO less specified fees and underwriter discounts.
On the Repurchase Closing Date, the Company and Alibaba Group entered into an amendment of their existing
Technology and Intellectual Property License Agreement (the “TIPLA”) pursuant to which Alibaba Group made
a payment to the Company of $550 million in satisfaction of certain future royalty payments under the existing
TIPLA. The Company will recognize this revenue over the remaining four-year term. For the year ended
December 31, 2012, the Company recognized approximately $39 million in revenue related to the TIPLA.
Alibaba Group will continue making royalty payments until the earlier of the fourth anniversary of the effective
date of the amendment and a Qualified IPO. Pursuant to the terms of the TIPLA, the Company also recognized
revenue of approximately $28 million, $44 million, and $86 million for the years ended December 31, 2010,
2011, and 2012, respectively.
The following table presents Alibaba Group’s U.S. GAAP financial information, as derived from the Alibaba
Group financial statements (in thousands):
Twelve Months Ended September 30,
2010 2011 2012
Operating data(*):
Revenue ............................................... $1,298,229 $2,344,973 $4,082,838
Gross profit ............................................ $ 986,455 $1,557,392 $2,764,314
(Loss) income from operations ............................. $ (14,346) $ 325,334 $ 687,632
Net income ............................................ $ 42,463 $ 339,552 $ 536,050
Net (loss) income attributable to Alibaba Group ............... $ (10,743) $ 268,004 $ 484,511
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