Yahoo 2014 Annual Report Download - page 125

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included the stated value of $800 million plus accrued dividends of $46 million. Prior to their
redemption, 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.
Alibaba Group IPO. On September 24, 2014, Alibaba Group closed its IPO of ADSs. Each Alibaba
Group ADS represents one ordinary share of Alibaba Group. YHK sold 140,000,000 Alibaba Group
ADSs in the IPO at an initial public offering price of $68.00 per ADS. The Company received $9.4
billion (net of underwriting discounts, commissions, and fees of approximately $115 million) in cash for
the 140 million Alibaba Group ADSs sold. The Company recorded a pre-tax gain of $10.3 billion
(including a $1.3 billion gain reflecting the Company’s proportionate share of the proceeds from the
IPO) for the year ended December 31, 2014, which is included in other income, net on the
consolidated statements of income. The after-tax gain was approximately $6.3 billion. Following
completion of the sale in the IPO, the Company retained 383,565,416 Alibaba Group ordinary shares,
representing approximately 15 percent of Alibaba Group’s outstanding ordinary shares.
As of the date of the IPO, the Company no longer accounts for its remaining investment in Alibaba
Group using the equity method and no longer records its proportionate share of Alibaba Group’s
financial results in the consolidated financial statements. The Company reflects its remaining
investment in Alibaba Group as an available-for-sale equity security on the consolidated balance
sheet and adjusts the investment to fair value each quarterly reporting period with changes in fair
value recorded within other comprehensive income (loss), net of tax. Also in connection with the IPO,
each of Yahoo and YHK entered into a lock-up agreement with the underwriters restricting the sale
of its remaining Alibaba Group shares for a period of one year, subject to certain exceptions. As of
December 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 certain voting arrangements with respect to all of its
Alibaba Group shares, including an agreement to vote for the director nominee of SoftBank and the
director nominees of the Alibaba Partnership (a partnership comprised of members of management
of Alibaba Group, one of its affiliates and/or certain companies with which Alibaba Group has a
significant relationship). Yahoo also granted a proxy to Jack Ma and Joe Tsai, Alibaba Group’s
executive chairman and executive vice chairman, respectively, to vote, subject to certain exceptions,
121.5 million of the Company’s Alibaba Group shares or, if less, the remaining Alibaba Group shares
then owned by the Company.
See Note 2—“Marketable Securities, Investments and Fair Value Disclosures” for additional
information.
Technology and Intellectual Property License Agreement (the “TIPLA”). On the Repurchase Closing
Date, the Company and Alibaba Group entered into an amendment of the existing 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. As a result of the IPO, the TIPLA will
terminate on September 18, 2015 and Alibaba Group’s obligation to make royalty payments under the
TIPLA ceased on September 24, 2014. The royalty revenue recognized was approximately $86
million, $122 million, and $106 million for the years ended December 31, 2012, 2013 and 2014,
respectively. The remaining initial TIPLA deferred revenue of $199 million is now being recognized
ratably over the remaining term of the TIPLA, through September 18, 2015. For the years ended
December 31, 2012, 2013, and 2014, the Company recognized approximately $39 million, $137 million,
and $175 million, respectively, of the TIPLA deferred revenue.
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