Yahoo 2014 Annual Report Download

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2014
Annual Report

Table of contents

  • Page 1
    2014 Annual Report

  • Page 2
    ... to more than 1 billion monthly active users-more than 575 million of whom visited us on a mobile device. As an advertising-driven business, we've continued to build and modernize our ad offerings with Yahoo Gemini, Yahoo Ad Manager Plus, BrightRoll and Flurry. These strategic investments, a mixture...

  • Page 3
    ... July 2012 through the end of 2014. Our board and management team will have returned, post-spin, more than $40 billion of value to our shareholders, a historic amount for a company of any size. Ultimately, including a total of $9.8 billion of shares repurchased by Yahoo from Q2 2012 through Q1 2015...

  • Page 4

  • Page 5
    ... incorporation or organization) 77-0398689 (I.R.S. Employer Identification No.) 701 First Avenue Sunnyvale, California 94089 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (408) 349-3300 Securities registered pursuant to Section 12...

  • Page 6
    ...Yahoo Parenting, Yahoo Music, Yahoo Movies, Yahoo TV, Yahoo Screen, Aviate, Yahoo News, Yahoo News Digest, Yahoo Mail, Yahoo Answers, Yahoo Search, Yahoo Messenger, Yahoo Games Network, Yahoo Finance, Yahoo Weather, Yahoo Sports, Yahoo Gemini, Yahoo Premium Ads, Yahoo Ad Manager Plus, Yahoo Smart TV...

  • Page 7
    ... Market under the symbol "YHOO." Yahoo is a global company headquartered in Sunnyvale, California. Executive Leadership The executive management team includes Marissa Mayer-President and Chief Executive Officer; David Filo-Co-Founder and Chief Yahoo; Ken Goldman-Chief Financial Officer; Ron Bell...

  • Page 8
    ... Katie Brown; Yahoo Parenting is led by Editorial Director Lindsay Powers; and Yahoo Music is led by Executive Editor of Entertainment Josh Wolk. In addition, we hired Yahoo TV Editor-in-Chief Kristen Baldwin; and announced José Mourinho as exclusive Global Football Ambassador for 2014 in the lead...

  • Page 9
    ... users to their apps, contacts and the Web. • • Communications: • We launched a new version of Yahoo Mail for iPhone, iPad and Android; and added a personalized news experience plus travel and event notifications on the Yahoo Mail app. We also launched Paperless Post stationery designs...

  • Page 10
    ... the Yahoo Properties and Affiliate sites. Yahoo also expanded the cross-screen capabilities of video advertising for advertisers by integrating in-app inventory from Flurry's Marketplace. • • • • Our Business User Offerings With hundreds of Search partners, a world-class mail platform...

  • Page 11
    ... at the moment they need it. Communications Yahoo Mail connects users to the people and things that are most important to them across mobile phones, tablets and PC. In addition to mail, we offer users integrated contacts, calendar and messaging products, all outfitted with one terabyte of storage...

  • Page 12
    ... Global events: Launched dedicated mobile and PC sites to cover the Winter Olympics in Sochi and the FIFA World Cup in Brazil, featuring original and partner content, fantasy games, and live scores. Yahoo Finance provides a comprehensive set of financial data, information, and tools that help users...

  • Page 13
    ...video and mobile ads. Yahoo Audience Ads deliver the right messages to the right users across Yahoo, exclusive publishing partners, and public exchange-traded sites with the scale and targeting precision of real-time programmatic buying. Yahoo Audience Ads offer data-driven ad buying, optimized with...

  • Page 14
    ... and buy side platforms, focused in native advertising and mobile application publishers. Yahoo Ad Exchange is a platform that enables advertisers to easily target global audiences across Yahoo Properties, Affiliate sites and other publisher sites on mobile and the Web. Product Development Yahoo...

  • Page 15
    ... three primary channels: field, mid-market, and reseller/small business. Our field advertising sales team sells display advertising in all markets and search advertising to premium advertisers under the Search Agreement with Microsoft. Our mid-market channel sells our advertising services to medium...

  • Page 16
    ... these companies to obtain agreements with third parties to promote or distribute our services. In addition, we compete with social media and networking sites which are attracting an increasing share of users, users' online time and online advertising dollars. In a number of international markets...

  • Page 17
    ...users, advertisers, publishers, developers, and distributors. We face significant competition from online search engines, sites offering integrated internet products and services, social media and networking sites, e-commerce sites, and broadcast and print media. In a number of international markets...

  • Page 18
    ..., online services and content in a manner similar to Yahoo. We compete against these and other companies to attract and retain users, advertisers, developers, and third-party Website publishers as participants in our Affiliate network, and to obtain agreements with third parties to promote or...

  • Page 19
    ... resources to the creation and support of developing new and innovative mobile products, services and apps. However, if our new mobile products, services and apps, including new forms of Internet advertising for mobile devices, do not continue to attract and retain mobile users, advertisers...

  • Page 20
    ... and operating results. Under our Search Agreement with Microsoft, Microsoft is the exclusive algorithmic and paid search services provider on Yahoo Properties on PCs and non-exclusive provider of such services on Affiliate sites and for mobile devices for the transitioned markets. Approximately 35...

  • Page 21
    ...in each case, mobile devices. Termination of the Search Agreement, or disputes with Microsoft related to a termination of the Search Agreement, could have an adverse impact on our business, revenue and operating results. Our proposed plan to spin off all of our remaining holdings in Alibaba Group is...

  • Page 22
    ... or to meet financial projections; the potential for patent and trademark infringement and 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...

  • Page 23
    ... 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 24
    ... of our business, including actions with respect to intellectual property claims, privacy, consumer protection, information security, data protection or law enforcement matters, tax matters, labor and employment claims, commercial claims, as well as actions involving content generated by our users...

  • Page 25
    ... 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 26
    ... our business. Federal, state, and international laws and regulations govern the collection, use, retention, disclosure, sharing and security of data that we receive from and about our users. The use of consumer data by online service providers and advertising networks is a topic of active interest...

  • Page 27
    .... Design errors might exist in these systems, or might be introduced when we make modifications, which might cause service malfunctions or require services to be taken offline while corrective responses are developed. Despite our implementation of network security measures, our servers are...

  • Page 28
    ... 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, consumer protection, accessibility...

  • Page 29
    ... 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. Further, we hedge a portion of our net investment in Yahoo Japan Corporation ("Yahoo Japan") with currency forward...

  • Page 30
    ... our costs of doing business internationally and could result in harm to our business, operating results, and financial condition. We may be subject to legal liability associated with providing online services or content. We host and provide a wide variety of services and technology products that...

  • Page 31
    ... 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 32
    ...to manage expansion of userfacing 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 around...

  • Page 33
    ... products, services and apps, increase our cost of doing business and adversely affect our operating results. Technologies, tools, software, and applications could block our advertisements, impair our ability to deliver interest-based advertising, or shift the location in which advertising appears...

  • Page 34
    ... of our business model. We have dedicated resources to provide a variety of premium enhancements to our products, services and apps, 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...

  • Page 35
    ...; general economic conditions; and the operating performance and market valuation of Alibaba Group and Yahoo Japan Corporation in which we have investments. The equity valuation of our investment in Yahoo Japan Corporation may be impacted due to fluctuations in foreign currency exchange rates...

  • Page 36
    ... circumstances, depress the market price of our common stock and the Notes. Risks Relating to the Notes The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the Notes...

  • Page 37
    ... the Company or the Notes, the trading price of the Notes could decline. The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results. In May 2008, the Financial Accounting Standards Board ("FASB...

  • Page 38
    ... use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share would be adversely affected. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our headquarters is located in Sunnyvale, California and consists of owned...

  • Page 39
    ... of Equity Securities Market Information for Common Stock Yahoo! Inc. common stock is quoted on the NASDAQ Global Select Market under the symbol "YHOO." The following table sets forth the range of high and low per share sales prices as reported for each period indicated: 2013 High Low High 2014 Low...

  • Page 40
    ... of Equity Securities Share repurchase activity during the three months ended December 31, 2014 was as follows: Total Number of Shares Purchased as Part of a Publicly Announced Program Period Total Number of Shares Purchased(1) Average Price Paid per Share Approximate Dollar Value of Shares that...

  • Page 41
    ... 31, 2010, December 31, 2011, December 31, 2012, December 31, 2013, and December 31, 2014. The graph assumes that $100 was invested at the market close on December 31, 2009 in the common stock of Yahoo, the NASDAQ 100 Index, the S&P Internet, and the S&P 500 and assumes reinvestment of any dividends...

  • Page 42
    ... financial statements. Consolidated Statements of Income Data: Years Ended December 31, 2010(3) 2011(4) 2012(5) 2013(6) 2014(7) (in thousands, except per share amounts) Revenue Total operating expenses Income from operations(1) Other income, net(2) Provision for income taxes Earnings in equity...

  • Page 43
    ... related to our sale of American Depositary Shares ("ADSs") of Alibaba Group in Alibaba Group's initial public offering ("IPO") in September 2014. See Note 8-"Investments in Equity Interests Accounted for Using the Equity Method of Accounting" in the Notes to our consolidated financial statements...

  • Page 44
    ...Balance Sheets Data: December 31, 2010 2011 2012(1) (In thousands) 2013(2) 2014(3) Cash and cash equivalents $ 1,526,427 Marketable securities Alibaba Group equity securities Alibaba Group Preference Shares Working capital Investments in equity interests Total assets Income taxes payable related to...

  • Page 45
    ...; expectations about our share repurchase activity; expectations about the financial and operational impacts of our Search and Advertising Services and Sales Agreement (the "Search Agreement") with Microsoft Corporation ("Microsoft"); impact of recent acquisitions on our business and evaluation of...

  • Page 46
    ... can build their businesses by advertising to targeted audiences on our online properties and services ("Yahoo Properties") or through a distribution network of third-party entities ("Affiliates") who integrate our advertising offerings into their Websites or other offerings ("Affiliate sites"). Our...

  • Page 47
    ...(used in) operating activities; and free cash flow. Revenue ex-TAC, adjusted EBITDA, and free cash flow are financial measures that are not defined in accordance with U.S. generally accepted accounting principles ("GAAP"). We use these non-GAAP financial measures for internal managerial purposes and...

  • Page 48
    ...non-GAAP financial measure) Years Ended December 31, 2012 2013 (dollars in thousands) 2014 2012-2013 % Change 2013-2014 % Change Net income attributable to Yahoo! Inc. $ 3,945,479 Costs associated with the Korea business and its closure Deal-related costs related to the sale of Alibaba Group shares...

  • Page 49
    ... Cash Flow (a non-GAAP financial measure) Years Ended December 31, 2012 2013 (dollars in thousands) 2014 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 Free cash flow...

  • Page 50
    ...2014, the Company completed the acquisition of BrightRoll, Inc. ("BrightRoll"), a leading programmatic video advertising platform, for $583 million. The transaction will combine Yahoo's premium-desktop and mobile video advertising inventory with BrightRoll's programmatic video platform and publisher...

  • Page 51
    ... a mobile data analytics company that optimizes mobile experiences for developers, marketers, and consumers, for $270 million. The combined scale of Yahoo and Flurry is expected to create more personalized and inspiring app experiences for users and enable more effective mobile advertising solutions...

  • Page 52
    ... pursuant to the terms of the Search Agreement. For search revenue generated from Microsoft's services on Yahoo Properties and Affiliate sites, we report as revenue our revenue share, as we are not the primary obligor in the arrangement with the advertisers and publishers, and the amounts paid to...

  • Page 53
    ...-month average of the Company's revenue per search in the United States (the "U.S. RPS") on Yahoo Properties is less than a specified percentage of Google's trailing 12-month estimated average U.S. RPS, excluding, in each case, mobile devices. See Note 19-"Search Agreement with Microsoft Corporation...

  • Page 54
    ... sites Total Search revenue Display Yahoo Properties Affiliate sites Total Display 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 55
    ... sites Total Search revenue Display Yahoo Properties Affiliate sites Total Display 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 56
    ... patents Goodwill impairment charge Restructuring charges, net Income from operations N/M = Not Meaningful (1) Direct costs for each segment include certain cost of revenue-other and costs associated with the local sales teams. Prior to the fourth quarter of 2014, marketing, media, costs associated...

  • Page 57
    ... new mobile apps and refreshed the user experience on mobile across a number of Yahoo Properties, including News, Sports (including Fantasy Sports), Mail, Finance, Weather, and Screen. We are seeing an increase in the number of our daily and monthly mobile users as a result of these product...

  • Page 58
    ... 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 as we...

  • Page 59
    ... the Equity Method of Accounting" in the Notes to our consolidated financial statements for additional information on revenue earned from Yahoo Japan and Alibaba Group. Fees revenue consists of revenue generated from a variety of consumer and business feebased services as well as services for small...

  • Page 60
    ...-Click" for search and the number of "Ads Sold" and "Price-per-Ad" for display. This information is derived from internal data. "Paid Clicks" are defined as clicks by end-users on sponsored search listings (excluding native ad units) on Yahoo Properties and Affiliate sites. Advertisers generally pay...

  • Page 61
    ... by a decline in Affiliate search revenue in the region. The decline in display revenue ex-TAC for the year ended December 31, 2014 was due to a decline in premium ads sold on Yahoo Properties, partially offset by an increase in native advertising and advertising on Affiliate sites. The decline in...

  • Page 62
    ...agreement with Alibaba Group. These increases were partially offset by a decline in display revenue ex-TAC of $142 million due to declines in the number of Ads Sold on a premium basis on Yahoo Properties, and a decline in listingsbased revenue of $50 million. Revenue ex-TAC in the Americas accounted...

  • Page 63
    ...: marketing, media, costs associated with Yahoo Properties, and ad operations. These costs historically were managed by each segment and are now managed globally. Prior period amounts and commentary related to our direct costs have been revised to conform to the current presentation. Americas For...

  • Page 64
    ...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 of varying duration that involve TAC. There are generally two economic structures of the Affiliate agreements: fixed...

  • Page 65
    ...an increase in the number of awards being expensed at a higher fair value. The increase in marketing and public relations expense for the year ended December 31, 2014 was primarily due to increased media advertising and spend on promotional event management. Sales and marketing expenses for the year...

  • Page 66
    ... ended December 31, 2014 was attributable to an increase in the number of awards being expensed at a higher fair value and an increase in expense related to equity assumed and granted related to acquisitions. Product development expenses for the year ended December 31, 2013 increased $123 million...

  • Page 67
    ... were primarily related to a patent sale agreement with a wholly-owned affiliate of Alibaba Group entered into during 2013 for $70 million. See Note 4-"Acquisitions and Dispositions" in the Notes to our consolidated financial statements for additional information. Goodwill Impairment Charge We...

  • Page 68
    ... resources with our product strategy and improve efficiency, which have resulted in workforce reductions and the consolidation of certain real estate facilities and data centers. During the year ended December 31, 2012, we recorded expense of $103 million, $45 million, and $88 million related to...

  • Page 69
    ...$10 billion related to the sale of Alibaba Group ADSs. See "Significant Transactions-Alibaba Group Holding Limited Initial Public Offering" above and Note 8-"Investments in Equity Interests Accounted for Using the Equity Method of Accounting" in the Notes to our consolidated financial statements for...

  • Page 70
    ... from sales or impairments of marketable securities and/or investments in privately-held companies, foreign exchange gains and losses due to re-measurement of monetary assets and liabilities denominated in non-functional currencies, and unrealized and realized foreign currency transaction gains and...

  • Page 71
    ... $54 million. In 2014, we settled the IRS income tax examination for the 2007 through 2010 returns resulting in a benefit of approximately $25 million. In 2014, YHK sold 140 million Alibaba Group ADSs in the IPO at an initial public offering price of $68.00 per ADS, which resulted in an increase in...

  • Page 72
    ... during the fourth quarter of 2014 because, following Alibaba Group's IPO in September 2014, we no longer account for our interest in Alibaba Group using the equity method. Since we no longer use the equity method to account for our interest in Alibaba Group, our earnings in equity interests and net...

  • Page 73
    ... the year ended December 31, 2013. Our foreign subsidiaries held $524 million of our total $10 billion of cash and cash equivalents and marketable securities (excluding Alibaba Group and Hortonworks equity securities) as of December 31, 2014. The cumulative earnings remaining in our consolidated...

  • Page 74
    ... convertible notes discount, stock-based compensation expense, non-cash restructuring charges, non-cash goodwill impairment charges, tax benefits from stock-based awards, excess tax benefits from stock-based awards, deferred income taxes, earnings in equity interests, and gains from sales of patents...

  • Page 75
    ... for non-cash items including: earnings in equity interests of $897 million, excess tax benefits from stock-based awards of $64 million, deferred income tax benefit of $84 million, dividend income related to Alibaba Group Preference Shares of $36 million, and gains on sales of patents of $80 million...

  • Page 76
    ... used for acquisitions, offset by net proceeds from sales and maturities of marketable securities of $3.6 billion, $800 million received from the redemption of the Alibaba Group Preference Shares, $80 million from sales of patents, and $290 million from the settlement of foreign exchange contracts...

  • Page 77
    ... common stock beneficially owned by Third Point LLC on 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, at $29.11 per share, which was the closing price of our common stock on July 19...

  • Page 78
    ... of purchases of computer hardware, software, server equipment, furniture and fixtures, real estate, and capitalized software and labor for internal use software projects. Capital expenditures, net were $372 million in 2014, $338 million in 2013, and $506 million in 2012. Capital expenditures...

  • Page 79
    ... liabilities that may arise by reason of their status or service as directors or officers. We have also agreed to indemnify certain former officers, directors, and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which...

  • Page 80
    ...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 listingsbased services revenue, transaction revenue, and fees revenue...

  • Page 81
    ..., unexpected adverse business conditions, regulatory changes, loss of key personnel and reporting unit and macroeconomic factors. Goodwill is tested for impairment at the reporting unit level, which is one level below our operating segments. We identified U.S. & Canada, Latin America, and Tumblr as...

  • Page 82
    ... securities of comparable companies and risk premiums of reporting units based on international cost of capital methods. • • The components above require us to make assumptions about the timing and amount of future cash flows, growth rates and discount rates. Significant management judgment...

  • Page 83
    ... control using the equity method. In accounting for these investments we record our proportionate share of the entities' net income or loss, one quarter in arrears. We review our investments in equity interests for impairment whenever events or changes in business circumstances indicate that...

  • Page 84
    ... in currency exchange rates and interest rates and changes in the market values of our investments. We may use derivative financial instruments to mitigate certain risks in accordance with our investment and foreign exchange policies. We enter into master netting arrangements, which are designed to...

  • Page 85
    ...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 86
    ... in marketable securities and equity instruments of public and private companies. As of the date of the Alibaba Group IPO, we no longer account for our remaining investment in Alibaba Group using the equity method and no longer record our proportionate share of Alibaba Group's financial results in...

  • Page 87
    ... 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, 2013 and 2014 Consolidated Statements of Income for each of the three years...

  • Page 88
    ...for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles...

  • Page 89
    ...December 31, 2013 and 2014, respectively Prepaid expenses and other current assets Total current assets Long-term marketable securities Property and equipment, net Goodwill Intangible assets, net Other long-term assets and investments Investment in Alibaba Group Investments in equity interests Total...

  • Page 90
    ...31, 2012 2013 2014 (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 impairment charge...

  • Page 91
    ... income, net of taxes of ($5,197), $479, and $1,339 for 2012, 2013, and 2014, respectively Net change in unrealized gains (losses) on availablefor-sale securities, net of tax Foreign currency translation adjustments ("CTA"): Foreign CTA gains (losses), net of taxes of ($2,210), ($19,754), and $1,734...

  • Page 92
    ... year Common stock and stock-based awards issued Stock-based compensation expense Tax (detriments) benefits 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 93
    ... 23,773 - - (126,021) 1,115,233 1,115,233 26,401 1,567 - (128,863) 1,014,338 1,014,338 24,197 - (39,859) (61,838) 936,838 2014 Number of Outstanding Shares The accompanying notes are an integral part of these consolidated financial statements. 89

  • Page 94
    ... on sale of Alibaba Group shares Gain on sale of Alibaba Group ADSs Gains on sales of patents Gain on Hortonworks warrants Goodwill impairment charge Earnings in equity interests Dividend income related to Alibaba Group Preference Shares Tax (detriments) benefits from stock-based awards Excess tax...

  • Page 95
    ... 31, 2012 2013 (in thousands) 2014 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...

  • Page 96
    ... businesses by advertising to targeted audiences on the Company's online properties and services ("Yahoo Properties") and through a distribution network of third-party entities ("Affiliates") who integrate the Company's advertising offerings into their Websites or other offerings ("Affiliate sites...

  • Page 97
    ... customer accounted for 10 percent or more of the Company's revenue for 2012, 2013, or 2014. See Note 19 "Search Agreement with Microsoft Corporation" for revenue under the Company's Search and Advertising Services and Sales Agreement (the "Search Agreement") with Microsoft Corporation ("Microsoft...

  • Page 98
    ... in Alibaba Group and Hortonworks to available-for-sale marketable securities exposes our investment portfolio to increased equity price risk. The Company evaluates the marketable equity securities periodically for possible other-than-temporary impairment. A decline of fair value below cost basis...

  • Page 99
    ... balance sheets at fair value. See Note 9-"Foreign Currency Derivative Financial Instruments" for a full description of the Company's derivative financial instrument activities and related accounting. Property and Equipment. Buildings are stated at cost and depreciated using the straight-line method...

  • Page 100
    ... Company records its share of the results of these companies one quarter in arrears within earnings in equity interests in the consolidated statements of income. Investments in privately held equity interests in which the Company cannot exercise significant influence are accounted for using the cost...

  • Page 101
    ... advertiser pays on a per click basis. The Company's Search Agreement with Microsoft provides for Microsoft to be the exclusive algorithmic and paid search services provider on Yahoo Properties on desktop computers and nonexclusive provider of such services on Affiliate sites and for mobile devices...

  • Page 102
    ... viewed by users. Clicks are delivered when a user clicks on a native advertisement. Arrangements for these services generally have terms of up to one year and in some cases the terms may be up to three years. For display advertising on Affiliate sites, the Company pays Affiliates for the revenue...

  • Page 103
    ... not be earned within the next 12 months. Cost of revenue-TAC. TAC consists of payments made to third parties that have integrated the Company's advertising offerings into their Websites or other offerings and payments made to companies that direct consumer and business traffic to Yahoo Properties...

  • Page 104
    ...recognizes expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of the Company's stock-based awards that are granted and cancelled before vesting. See Note 14-"Employee Benefits" for additional information. The Company uses the "with and...

  • Page 105
    ...with early application permitted. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on the Company's financial position, results of operations and cash flows. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard...

  • Page 106
    ... American Depositary Shares ("ADSs") of Alibaba Group in Alibaba Group's initial public offering ("IPO") on September 24, 2014, realized gains and losses from sales of available-for-sale marketable securities were not material for the years ended December 31, 2012, 2013 and 2014. The remaining...

  • Page 107
    ...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 the securities in an unrealized loss position. The Company expects to recover up to (or beyond) the initial cost of investment...

  • Page 108
    ... 850,002 3,602,321 3,327,017 1,361,165 Available-for-sale equity securities: Other corporate equity securities Alibaba Group equity securities Hortonworks equity Hortonworks warrants Foreign currency derivative contracts(3) Financial assets at fair value Liabilities 660 39,867,789 104,029 - - $40...

  • Page 109
    ... initial public offering, the Company owns 3.8 million unregistered shares, which represent a 9 percent ownership interest. These shares are subject to a 6month lock-up agreement. As of December 31, 2014, the remaining lock-up is approximately five and a half months. These shares are accounted for...

  • Page 110
    Note 3 Consolidated Financial Statement Details Prepaid Expenses and Other Current Assets As of December 31, prepaid expenses and other current assets consisted of the following (in thousands): 2013 2014 Prepaid expenses Deferred income taxes Foreign currency forward and option contract assets ...

  • Page 111
    ...thousands): 2013 2014 Deferred income taxes Investments in privately-held companies Hortonworks equity securities and warrants Foreign currency forward and... resulting from current period deductions. The December 31, 2014 balance excludes the income taxes payable related to the sale of Alibaba Group ...

  • Page 112
    ...518) $10,369,439 Interest, dividend, and investment income consists of income earned from cash in bank accounts, investments made in marketable debt securities and money market funds, and dividend income on the Alibaba Group Preference Shares prior to the redemption of such shares in May 2013. 108

  • Page 113
    ...CTA"): Korea business closure CTA reclassification Alibaba Group Initial Repurchase related CTA reclassification, net of $68,130 in tax Total foreign currency translation adjustments, net of tax Total reclassifications for the period $ 9,088 Yahoo!'s share of earnings in equity method investments...

  • Page 114
    ... securities, net of tax Foreign currency translation adjustments ("CTA"): Disposal of a portion of the investment in Alibaba Group,...31, 2014 (in millions): Purchase Price Goodwill Amortizable Intangibles 2012 All acquisitions 2013 Tumblr Other acquisitions 2014 Flurry BrightRoll Other acquisitions $...

  • Page 115
    ... posts made by other users. The acquisition of Tumblr brought a community of new users to the Yahoo Network. The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired and, as a result, the Company recorded goodwill in connection with this transaction...

  • Page 116
    ..., 2014, the Company completed the acquisition of Flurry, Inc. ("Flurry"), a mobile data analytics company that optimizes mobile experiences for developers, marketers, and consumers. The combined scale of Yahoo and Flurry is expected to create more personalized and inspiring app experiences for users...

  • Page 117
    ...12, 2014, the Company completed the acquisition of BrightRoll, Inc. ("BrightRoll"), a leading programmatic video advertising platform. The transaction will combine Yahoo's premium-desktop and mobile video advertising inventory with BrightRoll's programmatic video platform and publisher relationships...

  • Page 118
    ...is recorded as revenue over the five year capture period. Patent Sale Agreements During 2013 and 2014, the Company entered into patent sale agreements with a wholly-owned affiliate of Alibaba Group pursuant to which the Company sold certain patents for aggregate consideration of $70 million and $23...

  • Page 119
    ... balance as of January 1, 2013 Acquisitions Goodwill impairment charge Foreign currency translation adjustments Net balance as of December 31, 2013 Acquisitions and other Goodwill impairment charge Foreign currency translation adjustments Net balance as of December 31, 2014 (1) (2) $2,870,031 934...

  • Page 120
    ...not impaired. Note 6 Intangible Assets, Net The following table summarizes the Company's intangible assets, net (in thousands): December 31, 2013 Gross Carrying Amount Accumulated Amortization(*) Net Customer, affiliate, and advertiser related relationships Developed technology and patents Trade...

  • Page 121
    ... million and $18 million as of December 31, 2013 and 2014, respectively. The intangible assets have estimated useful lives as follows Customer, affiliate, and advertiser related relationships-four to eight years; Developed technology and patents-one year to eight years; and Trade names, trademarks...

  • Page 122
    .... In the event an actual conversion of any or all of the Notes occurs, the shares that would be delivered to the Company under the note hedges are designed to neutralize the dilutive effect of the shares that the Company would issue under the Notes. See Note 11-"Convertible Notes" for additional...

  • Page 123
    ... of the Company's China-based businesses ("Yahoo China"), and direct transaction costs of $8 million. Prior to the initial public offering ("IPO") by Alibaba Group of American Depositary Shares ("ADSs"), the Company's investment in Alibaba Group was accounted for using the equity method, and...

  • Page 124
    ... shareholders of Alibaba Group Holding Limited September 30, 2013 Balance sheet data: Current assets Long-term assets Current liabilities Long-term liabilities Convertible preferred shares and other mezzanine equity Noncontrolling interests (1) (2) Data is for the nine months ended June 30, 2014...

  • Page 125
    ... 31, 2014, the remaining lock-up period is 8.5 months. In connection with the IPO, Yahoo entered into a voting agreement with Alibaba Group, Jack Ma, Joe Tsai, SoftBank Corp., a Japanese corporation ("Softbank") and certain other shareholders of Alibaba Group, pursuant to which Yahoo agreed to...

  • Page 126
    ... assets, and goodwill, is classified as part of the investments in equity interests balance on the Company's consolidated balance sheets. The Company records its share of the results of Yahoo Japan and any related amortization expense, one quarter in arrears, within earnings in equity interests in...

  • Page 127
    ...and related taxes on dividends, of $2.8 billion and $3.3 billion as of December 31, 2013 and 2014, respectively. Under technology and trademark license and other commercial arrangements with Yahoo Japan, the Company records revenue from Yahoo Japan based on a percentage of advertising revenue earned...

  • Page 128
    ...by foreign currency exchange rate fluctuations. The total of the after-tax net investment hedge was less than the Yahoo Japan investment balance as of both December 31, 2013 and 2014. As such, the net investment hedge was considered to be effective. Cash Flow Hedges. The Company entered into foreign...

  • Page 129
    ... months ended December 31, 2013. The $317 million after tax impact of the gain recorded under other comprehensive income was included in accumulated other comprehensive income on the Company's consolidated balance sheets. Foreign currency derivative activity for the year ended December 31, 2014...

  • Page 130
    .... See the Foreign Currency and Derivative Financial Instruments section within Note 1-"The Company and Summary of Significant Accounting Policies" for additional information. Note 10 Credit Agreement On October 19, 2012, the Company entered into a credit agreement (the "Credit Agreement") with...

  • Page 131
    ... 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 132
    ...the consolidated balance sheet within additional paid-in capital. The following table sets forth total interest expense recognized related to the Notes (in thousands): Years Ended December 31, 2013 2014 Accretion of convertible note discount $4,846 $59,838 The fair value of the Notes, which was...

  • Page 133
    ...for 2012, 2013, and 2014, respectively. Many of the Company's leases contain one or more of the following options which the Company can exercise at the end of the initial lease 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...

  • Page 134
    ... may arise by reason of their status or service as directors or officers. The Company has also agreed to indemnify certain former officers, directors, and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which...

  • Page 135
    ..., 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, and other communications and...

  • Page 136
    ... 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 137
    ... on the Company's financial position, results of operations, 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...

  • Page 138
    ... year ended December 31, 2014, the Company retired 94 million shares, resulting in reductions of $94,000 in common stock, $795 million in additional paid-in capital, and $2.9 billion in retained earnings. Note 14 Employee Benefits Benefit Plans. The Company maintains the Yahoo! Inc. 401(k) Plan...

  • Page 139
    ...of both, and continued employment through the vesting period (which varies but generally does not exceed four 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...

  • Page 140
    ... 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 of the Company's common stock. Employee Stock Purchase Plan. The Employee Stock Purchase...

  • Page 141
    ... stock-based awards assumed through acquisitions (including stock-based commitments related to continued service of acquired employees, such as the holdback by Yahoo of shares of Yahoo common stock issued to Tumblr's founder in connection with the Company's acquisition of Tumblr in June 2013) are...

  • Page 142
    ... 31, Granted(2) Assumed in acquisitions Vested Forfeited Awarded and unvested at December 31, (1) 2013(1) 49,584 17,005 277 (18,959) (7,230) $24.20 $39.18 $40.85 $20.31 $24.20 $32.38 2014(1) 40,677 Includes the maximum number of shares issuable under the Company's performance-based restricted...

  • Page 143
    ... vested restricted stock awards were net share settled. The Company withheld 7.1 million shares based upon the Company's closing stock price on the vesting date, to satisfy the Company's tax withholding obligation relating to the employees' minimum statutory obligation for the applicable income and...

  • Page 144
    ... in February 2013. The 2013 and 2014 performance-based RSU awards are generally eligible to vest in equal annual target amounts over four years (three years for Ms. Mayer) based on the Company's attainment of annual financial performance goals as well as the executive's continued employment through...

  • Page 145
    ... 25,612 1,704 $103,450 The Company has implemented various restructuring plans to reduce its cost structure, align resources with its product strategy and improve efficiency, which have resulted in workforce reductions and the consolidation of certain real estate facilities and data centers. 141

  • Page 146
    ... Company's restructuring accrual activity for the years ended December 31, 2013 and 2014 is summarized as follows (in thousands): Total Accrual balance as of December 31, 2012 Restructuring charges Cash paid Foreign currency translation and other adjustments Accrual Balance as of December 31, 2013...

  • Page 147
    ...federal statutory income tax rate to income before income taxes and earnings in equity interests as follows (in thousands): Years Ended December 31, 2012 2013 2014 Income tax at the U.S. federal statutory rate of 35 percent State income taxes, net of federal benefit Stock-based compensation expense...

  • Page 148
    ... pay taxes of approximately $3.3 billion in the three months ended March 31, 2015 related to YHK's sale of Alibaba Group ADSs in the IPO on September 24, 2014. On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law, extending 2014 federal research and development credit...

  • Page 149
    ... foreign earnings resulting in an overall net benefit of $117 million. During 2013, the Company recorded an additional net benefit of $36 million related to this distribution. In 2014, the Company recorded a detriment of $8 million to account for the corresponding adjustments from the IRS on foreign...

  • Page 150
    ... 31, 2012, 2013, and 2014. Management believes that the terms of the agreements with these related parties are comparable to the terms obtained in arm's-length transactions with unrelated similarly situated customers of the Company. See Note 8-"Investments in Equity Interests Accounted for Using the...

  • Page 151
    ...on an internal reporting process that provides revenue ex-TAC, which is defined as revenue less TAC, direct costs excluding TAC by segment, and consolidated income from operations for making decisions related to the evaluation of the financial performance of, and allocating resources to, the Company...

  • Page 152
    ... product development, marketing, real estate workplace, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment. Beginning in the fourth quarter of 2014, marketing, media, costs associated with Yahoo...

  • Page 153
    ... 2013 and, 2014, respectively, was attributable to the Search Agreement. During the first five years of the term of the Search Agreement, in the transitioned markets, the Company was entitled to receive 88 percent of the revenue (the "Revenue Share Rate") generated from Microsoft's services on Yahoo...

  • Page 154
    ... and Hong Kong for 18 months after the transition of paid search services to Microsoft's platform in those markets, which was completed during the fourth quarter of 2013. The Company's results reflect search operating cost reimbursements from Microsoft under the Search Agreement of $67 million, $49...

  • Page 155
    effectiveness of an applicable registration statement with the Securities and Exchange Commission and compliance with the requirements under the Investment Company Act of 1940, and other customary conditions. The composition of SpinCo's independent board of directors and management team, and other ...

  • Page 156
    ...) Deferred tax asset valuation allowance 2012 2013 2014 (*) 53,140 51,503 36,690 (82) (4,595) (10,427) (1,555) (10,218) (2,410) 51,503 36,690 23,853 Amounts not charged (credited) to expenses are charged (credited) to stockholders' equity, deferred tax assets (liabilities), or goodwill. 152

  • Page 157
    ... income attributable to Yahoo! Inc. for the quarter ended September 30, 2013 includes net restructuring reversals of less than $1 million. Net income 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...

  • Page 158
    ... Alibaba Group shares of $6.3 billion, net of tax and net restructuring charges of $8 million. Net income attributable to Yahoo! Inc. for the quarter ended December 31, 2014 includes a gain on sale of patents of $35 million, a gain on Hortonworks warrants of $98 million, a goodwill impairment charge...

  • Page 159
    ... public accounting firm has issued an attestation report regarding its assessment of the Company's internal control over financial reporting as of December 31, 2014, which appears on page 84. Changes in Internal Control Over Financial Reporting There have been no changes in Yahoo's internal...

  • Page 160
    ...on "Investor Relations" in the left column, then on "Corporate Governance" then on "Documents" and then click on "Yahoo Code of Ethics". The Company's code of ethics applies to the Company's directors and employees, including our Chief Executive Officer, Chief Financial Officer, Principal Accounting...

  • Page 161
    ... 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, 2013 and 2014 Consolidated Statements of Income...

  • Page 162
    ... 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 26th day of February 2015. YAHOO! INC. By: /S/ KEN GOLDMAN Ken Goldman Chief Financial Officer Power of Attorney KNOW ALL...

  • Page 163
    Signature Title Date /S/ MAX R. LEVCHIN Max R. Levchin Director February 26, 2015 /S/ THOMAS J. MCINERNEY Thomas J. McInerney Director February 26, 2015 /S/ CHARLES R. SCHWAB Charles R. Schwab Director February 26, 2015 /S/ H. LEE SCOTT, JR. H. Lee Scott, Jr. Director February 26, 2015...

  • Page 164
    ...'s Current Report on Form 8-K filed October 15, 2013 and incorporated herein by reference). Third Amendment to Share Repurchase and Preference Share Sale Agreement, by and among Alibaba Group Holding Limited, Yahoo! Inc., and Yahoo! Hong Kong Holdings Limited, dated as of July 14, 2014 (previously...

  • Page 165
    ... Stock Unit Award Agreement for Executives, including the Notice of Grant, under the Yahoo! Inc. Stock Plan (previously filed as Exhibit 10.2(S) to the Registrant's Quarterly Report on Form 10-Q filed May 8, 2014 and incorporated herein by reference). 10.3(A)+* Yahoo! Inc. 1996 Employee Stock...

  • Page 166
    ... and incorporated herein by reference). Yahoo! Inc. Executive Incentive Plan for 2014 (previously filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q filed May 8, 2014 and incorporated herein by reference). Form of Severance Agreement (2013 version) (previously filed as Exhibit...

  • Page 167
    ...herein by reference). 10.13(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 Exhibit 10.18(D) to the Registrant's Quarterly Report on Form 10-Q filed May 10, 2011 and...

  • Page 168
    ... Number Description 10.13(M)†Ninth Amendment to Search and Advertising Services and Sales Agreement, dated as of June 27, 2013, by and between the Registrant and Microsoft Corporation (previously filed as Exhibit 10.16(M) to the Registrant's Quarterly Report on Form 10-Q filed August 8, 2013...

  • Page 169
    ..., dated April 14, 2014, to Performance Stock Option Agreement, between the Registrant and Ken Goldman (previously filed as Exhibit 10.18(C) to the Registrant's Quarterly Report on Form 10-Q filed May 8, 2014 and incorporated herein by reference). 10.17(A)+ Employment Offer Letter, dated October 15...

  • Page 170
    ...to the Registrant's Current Report on Form 8-K filed October 15, 2014 and incorporated herein by reference). 10.19(A) Purchase Agreement, dated July 22, 2013, among the Registrant, Third Point, LLC, Daniel S. Loeb, Third Point Partners L.P., Third Point Partners Qualified L.P., Third Point Offshore...

  • Page 171
    ...) L.L.C., J.P. Morgan Securities LLC, Morgan Stanley & Co. International plc, Citigroup Global Markets Inc., as representatives of the several underwriters named therein, Alibaba Group Holding Limited, Yahoo! Hong Kong Holdings Limited and the other selling shareholders listed therein (previously...

  • Page 172
    ... caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles...

  • Page 173
    ... caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles...

  • Page 174
    ...of 2002 In connection with the Annual Report on Form 10-K of Yahoo! Inc. (the "Company") for the year ended December 31, 2014 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...

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  • Page 177
    ... Yahoo Health, Yahoo Makers, Yahoo Parenting, Yahoo Music, Yahoo Movies, Yahoo TV, Yahoo Screen, Yahoo News, Yahoo News Digest, Yahoo Mail, Yahoo Answers, Yahoo Search, Yahoo Messenger, Yahoo Games Network, Yahoo Finance, Yahoo Weather, Yahoo Sports, Yahoo Gemini, Yahoo Premium Ads, Yahoo Ad Manager...

  • Page 178
    yahoo2014.tumblr.com