Yahoo 2013 Annual Report Download - page 105

Initial Repurchase by Alibaba Group. On September 18, 2012 (the “Repurchase Closing Date”), Alibaba Group
repurchased 523 million of the 1,047 million ordinary shares of Alibaba Group (the “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, which Alibaba redeemed for cash on May 16, 2013. The Initial Repurchase resulted in
a pre-tax gain of approximately $4.6 billion during the year ended December 31, 2012.
The Alibaba Group Preference Shares yielded 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 increasing the liquidation preference. The
Alibaba Group Preference Shares were callable by Alibaba Group at the redemption value (including accrued
dividends). On May 16, 2013, the Company received $846 million in cash from Alibaba Group to redeem the
Alibaba Group Preference Shares. The cash received represented the redemption value, which included the stated
value of $800 million plus accrued dividends of $46 million.
The Repurchase Agreement provided that at the time Alibaba Group completes an initial public offering meeting
certain specified criteria (a “Qualified IPO”), Yahoo and YHK would 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. This amount
was subsequently reduced to 208.0 million by an amendment to the Repurchase Agreement dated as of
October 14, 2013. 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
an initial 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 years
ended December 31, 2012 and 2013, the Company recognized approximately $39 million and $137 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 $44 million, $86 million, and $122 million for
the years ended December 31, 2011, 2012, and 2013, 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,
2011 2012 2013
Operating data:
Revenue ............................................... $2,344,973 $4,082,838 $6,734,978
Gross profit ............................................ $1,557,392 $2,764,314 $4,909,327
Income from operations .................................. $ 325,334 $ 687,632 $3,103,664
Net income ............................................ $ 339,552 $ 536,050 $2,847,139
Net income attributable to Alibaba Group .................... $ 268,004 $ 484,511 $2,809,429
103