Yahoo 2013 Annual Report Download - page 42

For the year ended December 31, 2012, adjusted EBITDA increased $44 million, or 3 percent, compared to 2011.
Excluding the impact of the Initial Repurchase described under “Significant Transactions” below, such increase
was primarily attributable to increased revenue in the Americas region and a decline in TAC in the EMEA
region.
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 .................. $1,323,806 $(281,554) $1,195,247
Acquisition of property and equipment, net .................... (593,294) (505,507) (338,131)
Dividends received from equity investees ..................... (75,391) (83,648) (135,058)
Excess tax benefits from stock-based awards ................... 70,680 35,844 64,407
Free cash flow(*) .................................... $ 725,801 $(834,865) $ 786,465
(*) Excluding the impact of the cash taxes paid of $2.3 billion related to the Initial Repurchase described under
“Significant Transactions” below, free cash flow for the year ended December 31, 2012 would have been
$1.4 billion.
For the year ended December 31, 2013, free cash flow increased $1.6 billion, compared to 2012. Excluding the
impact of the cash taxes paid in 2012 of $2.3 billion related to the Initial Repurchase described under
“Significant Transactions” below, free cash flow decreased $645 million in 2013, compared to 2012. The decline
was primarily due to an upfront payment of $550 million we received in 2012 from Alibaba Group Holding
Limited (the “Alibaba Group”) in satisfaction of certain future royalty payments under the existing technology
and intellectual property license agreement with Alibaba Group (the “TIPLA”), for which there were no similar
payments in 2013. This was partially offset by a decrease in capital expenditures.
For the year ended December 31, 2012, free cash flow decreased $1.6 billion, compared to 2011. Excluding the
impact of the cash taxes paid of $2.3 billion related to the Initial Repurchase described under “Significant
Transactions” below, free cash flow increased $705 million primarily due to the upfront payment of $550 million
from Alibaba Group in 2012 described above.
Non-GAAP Financial Measures
Revenue ex-TAC. Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue less traffic
acquisition costs (“TAC”). TAC consists of payments made to Affiliates that have integrated our advertising
offerings into their sites and payments made to companies that direct consumer and business traffic to 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 the net revenue we receive
under the Search Agreement as revenue and no longer present the associated TAC. Accordingly, for transitioned
markets we report GAAP revenue associated with the Search Agreement on a net (after TAC) basis rather than a
gross basis. For markets that had not yet transitioned, revenue continued to be recorded on a gross (before TAC)
basis, and TAC is recorded as a part of operating expenses.
We present revenue ex-TAC to provide investors a metric used by us for evaluation and decision-making
purposes during the Microsoft transition and to provide investors with comparable revenue numbers when
comparing periods preceding, during and following the transition period. A limitation of revenue ex-TAC is that
it is a measure which we have defined for internal and investor purposes that may be unique to us, and therefore
it may not enhance the comparability of our results to other companies in our industry who have similar business
40