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YAHOO IN NYC SEARCH
Enhancing Search
EDITORIAL EXCELLENCE
YAHOO 2013 ANNUAL REPORT YAHOO ON THE ROAD MONTHLY MOBILE USERS
Nearly half of new hires had design,
engineering, or product backgrounds
400M+
800M+
YAHOO SPORTS
NEW MAIL EXPERIENCE YAHOO WEATHER APP YAHOO NEWS DIGEST NEW LOGO
“2013 was a year
of tremendous
progress at Yahoo.”
50%
340,000+
Job Applications
TALENT TOP TECH TALENTINCREASE IN AVERAGE MONTHLY USERS TUMBLR ACQUISITION
monthly mobile users
average monthly users
yahoo2013.tumblr.com
YAHOO 2013 ANNUAL REPORT

Table of contents

  • Page 1
    ... users INCREASE IN AVERAGE MONTHLY USERS TALENT TUMBLR ACQUISITION 340,000+ Job Applications 800M+ average monthly users YAHOO 2013 ANNUAL REPORT NEW MAIL EXPERIENCE YAHOO WEATHER APP 50% YAHOO SPORTS Nearly half of new hires had design, engineering, or product backgrounds YAHOO NEWS DIGEST...

  • Page 2
    ... time in our history, we surpassed 400 million monthly users on mobile. As we innovate and build new products, mobile user growth will remain an integral part of our growth strategy. For Yahoo, mobile takes the things that we've always excelled at-Mail, Search, Finance, News-and puts them directly...

  • Page 3
    ... the Exchange Act). As of June 28, 2013, 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 stock, as reported on...

  • Page 4
    ... ...Properties ...Legal Proceedings ...Mine Safety Disclosures ... 3 13 30 31 31 31 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...ITEM 6 Selected Financial Data ...ITEM 7 Management's Discussion and Analysis of Financial...

  • Page 5
    ... a part of users' daily habits across products and platforms is a powerful tool to engage audiences and build brand loyalty. Advertisers can build their businesses through advertising to targeted audiences on our online properties and services ("Yahoo Properties") and a distribution network of third...

  • Page 6
    ... Emerging Products team in October 2012. Today, mobile traffic represents more than half of our 800 million monthly users (and these numbers do not include Internet Message Access Protocol ("IMAP") or Tumblr users). Our growth in mobile traffic has been the result of an engaging and inspiring suite...

  • Page 7
    ... industry-leading Flickr photo solution for mobile. To improve the product's functionality we added camera filtering and editing features to iOS devices in Q3 2013 and debuted in Apple's share sheet in iOS7, making uploading much easier. Flickr photo books, a web embed player, new auto-tagging and...

  • Page 8
    ... include rich results, contextual search results, site filters, related topic suggestions and more. Yahoo Answers enables users to seek, discover and share knowledge and opinions across mobile phones, tablets and desktop. COMMUNICATIONS Yahoo Mail connects users to the people and things that are...

  • Page 9
    ... reporting, real-time scores, statistics and breaking news, coverage of the biggest global sports events, and premium college sports coverage through our Rivals publisher network. With award-winning writers, a leading fantasy platform and live game tracking, Yahoo Sports delivers experiences...

  • Page 10
    ... for users to upload, store, organize, and share their photos. Flickr offers all members one terabyte of free storage. Members also have the ability to purchase printed books of their photos. TUMBLR Tumblr offers a web service and mobile applications (particularly on the iOS and Android platforms...

  • Page 11
    ... experiences with a set of application programming 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 Yahoo Ad Exchange for display advertising. PRODUCT DEVELOPMENT...

  • Page 12
    ... applications (Web/Mobile), scalable software platforms, information retrieval, machine learning and science, editorial, networking/communications technologies, and presentation layer frameworks. Our engineering and production teams are primarily located in our Sunnyvale, California, headquarters...

  • Page 13
    ... platforms, such as Google AdSense, DoubleClick Ad Exchange, AOL's Ad.com and Microsoft Media Network, as well as traditional media companies for a share of advertisers' marketing budgets and in the development of the tools and systems for managing and optimizing advertising campaigns. In a number...

  • Page 14
    ... INFORMATION Our Website is located at http://www.yahoo.com. Our investor relations Website is located at http://investor.yahoo.net. We make available free of charge on our investor relations Website under "Financial Info" our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current...

  • Page 15
    ... a number of competitors offer products 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...

  • Page 16
    ... advertising management platforms by advertisers, Website publishers, and online advertising networks; • successfully acquiring, investing in, and implementing new technologies and strategic partnerships; • successfully implementing changes in our sales force, sales development teams, and sales...

  • Page 17
    ..., and market share at a higher rate than we do. As mobile advertising continues to evolve and people increasingly access our products via mobile devices rather than PCs, our financial results may be adversely impacted if our mobile offerings are not widely adopted by users, advertisers and device...

  • Page 18
    ...competitors design, develop, or acquire control of alternative devices or their operating systems, we face an increased risk that our users will favor the services or properties of that competitor. We are dependent on the interoperability of our products and services with mobile operating systems we...

  • Page 19
    ...data privacy and security claims against the acquired companies, or companies in which we have invested; • litigation or other claims in connection with acquisitions, acquired companies, or companies in which we have invested; • the impairment or loss of relationships with customers and partners...

  • Page 20
    ... negatively impacted by 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...

  • Page 21
    ... patent holding companies often possess a significant number of patents. Further, many of these companies and other parties are actively developing or purchasing search, indexing, electronic commerce, and other Internet-related technologies, as well as a variety of online business models and methods...

  • Page 22
    ...liabilities, penalties, and negative publicity. The application of existing domestic 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...

  • Page 23
    ...we may incur significant legal and financial exposure. Our products and services involve the storage and transmission of Yahoo's users' and customers' personal and proprietary information in our facilities and on our equipment, networks and corporate systems. Security breaches expose us to a risk of...

  • Page 24
    ... and financial exposure, increased remediation and other costs, damage to our reputation and a loss of confidence in the security of our products, services and networks that could have an adverse effect on our business. We take steps to prevent unauthorized access to our corporate systems, however...

  • Page 25
    ... laws in domestic and international jurisdictions. We arrange for the distribution of third-party advertisements 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 23

  • Page 26
    ... unique users, number of Ads Sold, number of Paid Clicks, Price-per-Click and Price-per-Ad that are calculated using internal company data. We periodically review and refine our methodologies for monitoring, gathering, and calculating these metrics. Based on this process, from time to time we update...

  • Page 27
    ...to store user data, and track user preferences, together with the associated costs and potential loss of traffic, could harm our operating results, cash flows from operations, and financial condition. We rely on third parties to provide the technologies necessary to deliver content, advertising, and...

  • Page 28
    ... of third-party Websites, online networks, software companies, electronics companies, computer manufacturers, Internet service providers and others to promote or supply our services to their users. For example: • We maintain search and display advertising relationships with Affiliate sites, which...

  • Page 29
    ... resources to provide a variety of premium enhancements to our products and services, which might not prove to be successful in generating significant revenue for us. We offer fee-based enhancements for many of our free services. The development cycles for these technologies are long and generally...

  • Page 30
    ... its potential initial public offering) 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 industry...

  • Page 31
    ... be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefore, or pay cash with respect to Notes being converted if we elect not to issue shares, which could harm our reputation and affect the trading price of our common stock. The note hedge and warrant...

  • Page 32
    ... the market price per share of our common stock exceeds the applicable strike price of the warrants. In connection with establishing their initial hedge of the note hedge and warrant transactions, the option counterparties or their respective affiliates have purchased shares of our common stock and...

  • Page 33
    Item 2. Properties Our headquarters is located in Sunnyvale, California and consists of owned space aggregating approximately one million square feet. We also lease office space in Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, ...

  • Page 34
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Yahoo! Inc. common stock is quoted on the NASDAQ Global Select Market under the symbol "YAHOO." The following table sets forth the range of high and low per share sales prices as reported for...

  • Page 35
    ... of certain events. The initial conversion price represents a premium of approximately 50% to the $35.62 per share closing price of our common stock on November 20, 2013 (the date we entered into the purchase agreement). Upon conversion of the Notes, holders will receive cash, shares of our...

  • Page 36
    ... the warrants. Acquisition of Aviate On December 23, 2013, we entered into a stock purchase agreement to acquire ThumbsUp Labs, Inc. ("Aviate"). The acquisition closed on December 24, 2013. As a part of the acquisition, we agreed to issue 277,284 shares of Yahoo common stock (valued at approximately...

  • Page 37
    ... and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. The consolidated statements of income data and the consolidated balance sheets data for the years ended, and as of, December 31, 2009, 2010, 2011, 2012...

  • Page 38
    ... per both basic and diluted share, for the year ended December 31, 2013. (6) (7) Consolidated Balance Sheets Data: 2009 2010 December 31, 2011 (In thousands) 2012(1) 2013(2) Cash and cash equivalents ...Marketable securities ...Alibaba Group Preference Shares ...Working capital ...Investments in...

  • Page 39
    ...to current and historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business...

  • Page 40
    ... of users' daily habits across products and platforms is a powerful tool to engage audiences and build brand loyalty. Advertisers can build their businesses through advertising to targeted audiences on our online properties and services ("Yahoo Properties") or through a distribution network of third...

  • Page 41
    ... associated with the Korea business and its closure ...- 99,485 - Deal-related costs related to the sale of Alibaba Group shares ...- 6,500 - Depreciation and amortization ...625,864 649,267 628,778 Stock-based compensation expense ...203,958 224,365 278,220 Goodwill impairment charge ...- - 63,555...

  • Page 42
    .... Free Cash Flow (a non-GAAP financial measure) Years Ended December 31, 2011 2012 2013 (dollars in thousands) Net cash provided by (used in) operating activities ...Acquisition of property and equipment, net ...Dividends received from equity investees ...Excess tax benefits from stock-based awards...

  • Page 43
    ...from stock-based awards), less (i) acquisition of property and equipment, net and (ii) 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 44
    ... Advertising Services and Sales Agreement, as amended, (the "Search Agreement") with Microsoft Corporation ("Microsoft"), which provides for Microsoft to be the exclusive algorithmic and paid search services provider on Yahoo Properties and non-exclusive provider of such services on Affiliate sites...

  • Page 45
    ... of the revenue generated from Microsoft's services on Affiliate sites after the Affiliate's share of revenue and certain Microsoft costs are deducted. Under the Search Agreement, Yahoo is the exclusive worldwide relationship sales force for both companies' premium search advertisers. On February 23...

  • Page 46
    ...Search Yahoo Properties ...Affiliate sites ...Total Search revenue ...Other ...Total revenue ...Cost of revenue-TAC ...Cost of revenue-other ...Sales and marketing ...Product development ...General and administrative ...Amortization of intangibles ...Gains on sales of patents ...Goodwill impairment...

  • Page 47
    ...Search Yahoo Properties ...Affiliate sites ...Total Search revenue ...Other ...Total revenue ...Cost of revenue-TAC ...Cost of revenue-other ...Sales and marketing ...Product development ...General and administrative ...Amortization of intangibles ...Gains on sales of patents ...Goodwill impairment...

  • Page 48
    ... 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 experience costs were managed on...

  • Page 49
    ... expenses associated with the production and usage of Yahoo Properties, including amortization of acquired intellectual property rights and developed technology. Revenue We generate revenue principally from display and search advertising on Yahoo Properties and Affiliate sites, with the majority of...

  • Page 50
    ... 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 transitioned markets we report as revenue our 88 percent revenue share...

  • Page 51
    ..., Hong Kong, Southeast Asia, and India. "Paid Clicks" are defined as clicks by end-users on sponsored search listings 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 total number of Paid Clicks...

  • Page 52
    ... the revenue share with Microsoft associated with the Search Agreement. Display revenue ex-TAC on Yahoo Properties also declined due to a decrease in premium advertising related to a decline in supply which was partially offset by increased pricing. Revenue ex-TAC in EMEA accounted for approximately...

  • Page 53
    ... 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 54
    ..., and agreements based on a percentage of revenue, number of searches, or other metrics are expensed based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate. TAC for the year ended December 31, 2013 decreased $264 million, or 51 percent, compared to 2012...

  • Page 55
    ..., Autos and Screen, as well as our On the Road with Yahoo marketing campaign and our Fantasy Football television advertising campaign, for which there were no similar campaigns in 2012. The increase in stock based compensation in the sales and marketing function was due to an increase in the number...

  • Page 56
    ... a patent sale agreement with a wholly-owned affiliate of Alibaba Group entered into during the fourth quarter of 2013 for $70 million. Goodwill Impairment Charge We conducted our annual goodwill impairment test as of October 31, 2013 and determined that the fair values of our reporting units, with...

  • Page 57
    ... December 31, 2012 Q2'12 Q4'12 Restructuring Korea Business 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 accelerations (reversals) of stock-based compensation expense...

  • Page 58
    ... resources. During the year ended December 31, 2012, we incurred total pre-tax cash charges of $13 million in severance and contract termination costs. In addition to the pre-tax cash charges, we recorded a non-cash charge of $86 million related to goodwill and other asset impairments and a non-cash...

  • Page 59
    ... for additional information. Interest expense is related to the Notes and capital lease obligations for buildings and data centers. Other consists of gains and losses from sales or impairments of marketable securities and/or investments in privately-held companies, foreign exchange gains and...

  • Page 60
    ... the 2012 and 2013 federal research and development tax credits. • In 2012, in connection with a review of our cash position and anticipated cash needs for investment in our core business, including potential acquisitions, capital expenditures and stock repurchases, we made a one-time distribution...

  • Page 61
    ..., 2012, and 2011 were related to the Yahoo!7 venture in Australia. Liquidity and Capital Resources As of and for each of the years ended December 31 (dollars in thousands): 2012 2013 Cash and cash equivalents ...Short-term marketable securities ...Long-term marketable securities ...Total cash, cash...

  • Page 62
    ... 2013, we received $304 million in cash settlement of certain foreign exchange forward contracts designated as net investment hedges reducing the outstanding notional amount to $1.3 billion. We expect to continue to evaluate possible acquisitions of, or strategic investments in, businesses, products...

  • Page 63
    ... our sale of Alibaba Group Shares and proceeds from the sale of investments and other investing activities of $26 million. This was partially offset by $2.4 billion utilized for net purchases of marketable securities, $506 million used from capital expenditures, $6 million used for acquisitions, and...

  • Page 64
    ... taxes payable in the current year, they are reported as financing activities in the consolidated statements of cash flows. See Note 14-"Employee Benefits" in the Notes to our consolidated financial statements for additional information. Stock Repurchases In June 2010, the Board authorized a stock...

  • Page 65
    ... December 31, 2013 (dollars in millions): Payments Due by Period Due in Due in Due in 2014 2015-2016 2017-2018 Total Thereafter Convertible ...Operating lease obligations(2)(3) ...Capital lease obligation ...Affiliate commitments(4) ...Non-cancelable obligations(5) ...Intellectual property rights...

  • Page 66
    ... arising out of our breach of agreements or representations and warranties made by us, services to be provided by us, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to our conduct of the business and tax matters...

  • Page 67
    ...advertisements and search advertising revenue is generated from clicks on text-based links to advertisers' Websites that appear primarily on search results pages, and from revenue sharing arrangements with partners for search technology and services. Other revenue consists of listings-based services...

  • Page 68
    ...is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. In 2013, for the U.S. & Canada, Latin America, Tumblr, Taiwan, Hong Kong, and...

  • Page 69
    ...cash flows, and discount rates. These components are discussed below: • Market comparables We select comparable companies in the specific regions in which these reporting units operate based on similarity of type of business, primarily those involved in online advertising, relative size, financial...

  • Page 70
    ... such as the stock prices of public companies in which we have an equity investment, current economic and market conditions, the operating performance of the companies, including current earnings trends and forecasted cash flows, and other company and industry specific information. The fair value...

  • Page 71
    ... high-credit corporate issuers which are classified as marketable securities and cash equivalents. In 2013, we issued $1.4375 billion of Notes due 2018. We carry the Notes at face value less unamortized discount on our balance sheet. The fair value of the Notes changes when the market price of our...

  • Page 72
    ... during the year ended December 31, 2013. We did not enter into any cash flow hedges in the years ended December 31, 2012 and 2011. Balance Sheet Exposure. We hedge certain of our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that...

  • Page 73
    ... analysis was performed on all of our foreign currency derivative positions as of December 31, 2013 and December 31, 2012 to assess the potential impact of fluctuations in exchange rates. The VaR model uses a Monte Carlo simulation to generate thousands of random price paths assuming normal market...

  • Page 74
    ...dollars, British pounds, Euros, Japanese yen, 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. To the extent the U.S. dollar strengthens against foreign currencies...

  • Page 75
    ... Statements 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, 2012 and 2013 ...Consolidated Statements of Income for each of the three...

  • Page 76
    ... the financial position of Yahoo! Inc. and its subsidiaries at December 31, 2012 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United...

  • Page 77
    ...$32,635 and $35,549 as of December 31, 2012 and 2013, respectively ...Prepaid expenses and other current assets ...Total current assets ...Long-term marketable securities ...Alibaba Group Preference Shares ...Property and equipment, net ...Goodwill ...Intangible assets, net ...Other long-term assets...

  • Page 78
    ... 2012 2013 (in thousands, except per share amounts) Revenue ...Operating expenses: Cost of revenue-traffic acquisition costs ...Cost of revenue-other ...Sales and marketing ...Product development ...General and administrative ...Amortization of intangibles ...Gains on sales of patents ...Goodwill...

  • Page 79
    ... income, net of taxes of $(648), $(5,197), and $479 for 2011, 2012, and 2013, respectively ...Net change in unrealized gains (losses) on available-for-sale securities, net of tax ...Foreign currency translation adjustments ("CTA"): Foreign CTA gains (losses), net of taxes of $101, $(143), and $496...

  • Page 80
    ... and stock-based awards issued ...Stock-based compensation expense ...Tax benefits (detriments) from stock-based awards ...Tax withholdings related to net share settlements of restricted stock awards ...Retirement of treasury stock ...Equity component of convertible senior notes, net ...Purchase of...

  • Page 81
    ... Number of Outstanding Shares (in thousands) Common stock Balance, beginning of year ...Common stock and restricted stock issued ...Restricted stock issued under compensation arrangements ...Repurchases of common stock ...Tax withholdings related to net share settlements of restricted stock awards...

  • Page 82
    ... ...CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net ...Purchases of marketable securities ...Proceeds from sales of marketable securities ...Proceeds from maturities of marketable securities ...Proceeds related to sale of Alibaba Group Shares, net ...Proceeds related...

  • Page 83
    ... related to net share settlements of restricted stock awards and restricted stock units ...Proceeds from credit facility borrowings ...Repayment of credit facility borrowings ...Other financing activities, net ...Net cash used in financing activities ...Effect of exchange rate changes on cash...

  • Page 84
    ... users' daily habits across products and platforms is a powerful tool to engage audiences and build brand loyalty. 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...

  • Page 85
    ... the accounts receivable balance and no one customer accounted for 10 percent or more of the Company's revenue for 2011, 2012, or 2013. See Note 19 "Search Agreement with Microsoft Corporation" for revenue under the Company's Search and Advertising Services and Sales Agreement (the "Search Agreement...

  • Page 86
    ... income. The Company hedges certain of its net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that its earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These balance sheet hedges are used...

  • Page 87
    ... the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment on an annual basis and more frequently if impairment indicators are present. The Company's reporting units are one level below...

  • Page 88
    ... as the stock prices of public companies in which the Company has an equity investment, current economic and market conditions, the operating performance of the companies including current earnings trends and forecasted cash flows, and other company and industry specific information. Operating and...

  • Page 89
    ... markets, the Company reports as revenue the 88 percent share of revenue generated from Microsoft's services on Yahoo Properties and Affiliate sites, as the Company is not the primary obligor in the arrangement with the advertisers. See Note 19-"Search Agreement with Microsoft Corporation...

  • Page 90
    ... advertising offerings into their Websites or other offerings and payments made to companies that direct consumer and business traffic to Yahoo Properties. The Company enters into agreements of varying duration that involve TAC. There are generally two economic structures of the Affiliate agreements...

  • Page 91
    ... period, generally one to four years. Calculating stock-based compensation expense related to stock options requires the input of highly subjective assumptions, including the expected term of the stock options, stock price volatility, and the pre-vesting forfeiture rate of stock awards. The Company...

  • Page 92
    ... 31, 2012 2013 Reported as: Short-term marketable securities ...Long-term marketable securities ...Alibaba Group Preference Shares ...Other assets ...Total ... $1,516,175 1,838,425 816,261 197 $4,171,058 $1,330,304 1,589,500 - 383 $2,920,187 Available-for-sale securities included in cash and cash...

  • Page 93
    ..., 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 these securities. The Company expects to recover up to (or beyond) the initial cost...

  • Page 94
    ...-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) ...Financial assets...

  • Page 95
    ... 31, 2012 and 2013 includes $597 million and $569 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...

  • Page 96
    ... 2013 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 costs ...Current...

  • Page 97
    ... earned from cash in bank accounts, investments made in marketable securities and money market funds, and dividend income on the Alibaba Group Preference Shares. In September 2012, the Company recorded a pre-tax gain of approximately $4.6 billion related to the sale to Alibaba Group of Alibaba Group...

  • Page 98
    Interest expense is related to the Notes and capital lease obligations for buildings and data centers. Other consists of gains and losses from sales or impairments of marketable securities and/or investments in privately-held companies, foreign exchange gains and losses due to re-measurement of ...

  • Page 99
    ...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 awards vest over...

  • Page 100
    ... users to the Yahoo Network by deploying Yahoo's personalization technology and search infrastructure to deliver relevant content to the Tumblr user base. Other Acquisitions-Business Combinations. During the year ended December 31, 2013, the Company acquired 25 other companies, which were accounted...

  • Page 101
    ... goodwill in those reporting units was not impaired. Note 6 INTANGIBLE ASSETS, NET The following table summarizes the Company's carrying amount of intangible assets, net (in thousands): December 31, 2012 Gross Carrying Accumulated Amount Amortization(*) Net Customer, affiliate, and advertiser...

  • Page 102
    ... currencies of the underlying entities, increased total intangible assets by approximately $19 million as of both December 31, 2012 and 2013. The intangible assets have estimated useful lives as follows: • Customer, affiliate, and advertiser related relationships-two to eight years; • Developed...

  • Page 103
    ...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 costs of $8 million. Another investor in Alibaba Group is Softbank Corp., a Japanese corporation ("Softbank"). Alibaba Group is a privately-held...

  • Page 104
    ... the excess to goodwill to account for the estimated reductions in the carrying value of the investment in Alibaba that may occur as the Company's equity interest is diluted to 40 percent based on specific events anticipated at the time. As of both December 31, 2012 and 2013, the Company's ownership...

  • Page 105
    ... 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...

  • Page 106
    .... The fair value of the Company's ownership in the common stock of Yahoo Japan, based on the quoted stock price, was approximately $11 billion as of December 31, 2013. During the years ended December 31, 2011, 2012 and 2013, the Company received cash dividends from Yahoo Japan in the amounts of...

  • Page 107
    ...will be adversely affected by foreign currency exchange rate fluctuations. At inception, the forward contracts had maturities ranging from 9 to 15 months. The Company applies hedge accounting on its forward contracts for the net investment hedge of Yahoo Japan. The total balance of the after-tax net...

  • Page 108
    ..., 2011 and 2012. Balance Sheet Hedges. The Company hedges certain of its net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that its earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These...

  • Page 109
    ... with the financial covenants in the Credit Agreement and no amounts were outstanding. Note 11 CONVERTIBLE NOTES 0.00% Convertible Senior Notes In 2013, the Company issued the Notes. The Notes were sold under a purchase agreement, dated November 20, 2013, with J.P. Morgan Securities LLC and...

  • Page 110
    ... may increase the conversion rate for holders who elect to convert their Notes in connection with such corporate event should they occur. Upon conversion of the Notes, holders will receive cash, shares of Yahoo's common stock or a combination thereof, at Yahoo's election. The Company's intent is to...

  • Page 111
    ... table sets forth total interest expense recognized related to the Notes (in thousands): Year Ended December 31, 2013 Accretion of convertible note discount ... $4,846 As of December 31, the fair value of the Notes, which was determined based on inputs that are observable in the market (Level...

  • Page 112
    ...'s breach of agreements or representations and warranties made by the Company, services to be provided by the Company, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to the Company's conduct of the business and...

  • Page 113
    ... intellectual property rights, claims 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...

  • Page 114
    ... of the Board, Third Point LLC, and entities related to Third Point LLC. The complaint filed by the plaintiff asserts claims for alleged breach of fiduciary duty, waste, and unjust enrichment in connection with the Company's repurchase of 40 million shares of Company common stock beneficially owned...

  • Page 115
    ..., or cash flows. The Company may also incur substantial legal fees, which are expensed as incurred, in defending against these claims. Note 13 STOCKHOLDERS' EQUITY The Board has the authority to issue up to 10 million shares of preferred stock and to determine the price, rights, preferences...

  • Page 116
    ...July 25, 2013. These shares were repurchased pursuant to a purchase agreement entered into on July 22, 2013, prior to the market opening for trading in Yahoo stock, and at $29.11 per share, which was the closing price of the Company's common stock on July 19, 2013. The total purchase price for these...

  • Page 117
    ... on committees of the Board. Such stock options or restricted stock unit awards granted in lieu of cash fees are fully vested on the grant date. From time to time the Company also assumes stock-based awards in connection with corporate mergers and acquisitions, which awards become payable in shares...

  • Page 118
    ... of unamortized stockbased compensation cost related to the Employee Stock Purchase Plan which will be recognized over a weighted average period of 0.4 years. The Company's 1995 Stock Plan, the Directors' Plan, other stock-based awards assumed through acquisitions, and the Tumblr equity holdback are...

  • Page 119
    ... restricted stock awards were net share settled. The Company withheld 5.3 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 remitted cash to...

  • Page 120
    .... Performance-Based Executive Incentive Equity Awards. The financial performance stock options awarded by the Company in November 2012 include multiple performance periods. In January 2013, the Compensation and Leadership Development Committee of the Board (the "Compensation Committee") established...

  • Page 121
    ... Prior to 2012 Q2'12 Restructuring Plan Q4'12 Korea Business Closure Total Employee severance pay and related costs ...Non-cancelable lease, contract terminations, and other charges ...Other non-cash charges, net ...Sub-total before accelerations (reversals) of stock-based compensation expense...

  • Page 122
    ... Plans Prior to 2012 Year Ended December 31, 2013 Q2'12 Q4'12 Q4'13 Restructuring Korea Business Restructuring Plan Closure Plan Total Employee severance pay and related costs (reversals) ...Non-cancelable lease, contract terminations, and other charges ...Other non-cash charges ...Restructuring...

  • Page 123
    ... termination costs. In addition to the pre-tax cash charges, the Company recorded a non-cash charge of $86 million related to goodwill and other asset impairment and a non-cash credit approximately of $16 million related to the reversal of previously recorded cumulative foreign currency translation...

  • Page 124
    ...31, 2012 ...Cash paid ...Non-cash reversals of stock-based compensation expense ...Other non-cash charges, net ...Foreign currency ...Balance as of December 31, 2012 ...Employee severance pay and related costs ...Non-cancelable lease, contract termination, and other charges ...Other non-cash charges...

  • Page 125
    ..., net of federal benefit ...Stock-based compensation expense ...Research tax credits ...Effect of non-U.S. operations ...Settlement with tax authorities ...Remeasurement of prior year tax positions ...Acquisition related non-deductible expenses ...Goodwill impairment charge ...Other ...Provision for...

  • Page 126
    ...related to tangible property for income tax purposes. These regulations apply to the Company's tax year beginning on January 1, 2014. Based on its assessment as of December 31, 2013, these regulations will not have a material impact on the Company's financial position, results of operations, or cash...

  • Page 127
    ... (3,428) (888) $727,367 $695,285 The remaining balances are recorded on the Company's consolidated balance sheets as follows (in thousands): December 31, 2012 2013 Total unrecognized tax benefits balance ...Amounts netted against related deferred tax assets ...Unrecognized tax benefits recorded on...

  • Page 128
    ... December 31, 2012, tax authorities from the Brazilian State of Sao Paulo assessed certain indirect taxes against the Company's Brazilian subsidiary, Yahoo! do Brasil Internet Ltda., related to online advertising services. The assessment totaling approximately $85 million is for calendar years 2008...

  • Page 129
    ... 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 experience costs were managed on...

  • Page 130
    ...to the online property that generated the revenue. No single foreign country accounted for more than 10 percent of the Company's revenue in 2011, 2012, and 2013, respectively. Note 19 SEARCH AGREEMENT WITH MICROSOFT CORPORATION On December 4, 2009, the Company entered into the Search Agreement with...

  • Page 131
    ... 31, 2012 and December 31, 2013, 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 based on...

  • Page 132
    ... 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, 2013. Note 20 SUBSEQUENT EVENTS Stock Repurchase...

  • Page 133
    ... 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 2011 ...2012 ...2013 ... 22,975 30,142 32,635 Balance at Beginning of Year 18,147 12,868 10,278 (10,980) 30,142 (10,375) 32,635 (7,364...

  • Page 134
    ...$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 135
    ... attributable to Yahoo! Inc. for the quarter ended December 31, 2013 includes a gain on sale of patents of $70 million, a goodwill impairment charge of $64 million, and net restructuring charges of $8 million. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item...

  • Page 136
    ... applicable rules of the SEC and NASDAQ Stock Market LLC by posting such information on our Website, at the address and location specified above. Item 11. Executive Compensation The information required by this item is incorporated by reference to Yahoo's Proxy Statement for its 2014 Annual Meeting...

  • Page 137
    ... as part of this report: 1. Consolidated 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, 2012 and 2013 ...Consolidated Statements of...

  • Page 138
    ... 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 2014. YAHOO! INC. By: /S/ KEN GOLDMAN Ken Goldman Chief Financial Officer Power of Attorney KNOW ALL...

  • Page 139
    ... exhibits. Exhibit Number Description 2.1 Share Repurchase and Preference Share Sale Agreement, by and between Alibaba Group Holding Limited, the Registrant, and Yahoo! Hong Kong Holdings Limited, dated as of May 20, 2012 (previously filed as Exhibit 2.1 to the Registrant's Current Report on Form...

  • Page 140
    ...). 10.2(J)+ 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 141
    ... 10.4(B) to the Registrant's Quarterly Report on Form 10-Q filed August 9, 2010 and incorporated herein by reference). Form of Notice of Restricted Stock Unit Grant and Director Restricted Stock Unit Award Agreement under the Yahoo! Inc. 1996 Directors' Stock Plan (previously filed as Exhibit 10...

  • Page 142
    ... to the Registrant's Annual Report on Form 10-K filed February 26, 2010 and incorporated herein by reference). 10.14(D)†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...

  • Page 143
    ... 10.17(A)+ Employment Offer Letter, dated July 16, 2012, between the Registrant and Marissa A. Mayer (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed July 19, 2012 and incorporated herein by reference). 10.17(B)+ Restricted Stock Unit Award Agreement (CEO Make...

  • Page 144
    Exhibit Number Description 10.17(G)+ Form of Restricted Stock Unit Award Agreement between the Registrant and Marissa A. Mayer, including Notice of Grant, under the Yahoo! Inc. 1995 Stock Plan (previously filed as Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed March 6, 2013 and ...

  • Page 145
    ... November 26, 2013 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...

  • Page 146
    ... 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 does not contain any...

  • Page 147
    ... 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 not...

  • Page 148
    ... 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of Yahoo! Inc. (the "Company") for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Marissa A. Mayer, as Chief Executive Officer of the...

  • Page 149
    ... Suite 1800 San Jose, CA 95110 TRANSFER AGENT Computershare Trust Company, N.A. P.O. Box 30170 College Station, TX 77842 computershare.com/investor 877-373-6374 YAHOO INVESTOR RELATIONS investor.yahoo.net A copy of this report can be found online at yahoo2013.tumblr.com along with additional digital...

  • Page 150
    ... UNIFIED ADVERTISING SOLUTION ASSOCIATE PROGRAMS PARTNERSHIPS NATIVE AUDIENCE TWITTER PARTNERSHIP WORKING AT YAHOO PREMIUM SEARCH ANALYTICS YAHOO FOOD AND YAHOO TECH HACKDAYS SNL ON YAHOO SEARCH REVENUE EX-TAC GROWTH YAHOO SCREEN APP Q1 Q2 Q3 Q4 2012 2013 yahoo2013.tumblr.com