Yahoo 2014 Annual Report Download - page 49

Free Cash Flow (a non-GAAP financial measure)
Years Ended December 31,
2012 2013 2014
(dollars in thousands)
Net cash provided by (used in) operating activities $(281,554) $1,195,247 $ 896,700
Acquisition of property and equipment, net (505,507) (338,131) (372,147)
Dividends received from equity investees (83,648) (135,058) (83,685)
Excess tax benefits from stock-based awards 35,844 64,407 149,582
Free cash flow(*) $(834,865) $ 786,465 $ 590,450
(*) Excluding the impact of the cash taxes paid of $2.3 billion related to the Initial Repurchase, free
cash flow for the year ended December 31, 2012 would have been $1.4 billion.
For the year ended December 31, 2014, free cash flow decreased $196 million, compared to 2013,
primarily due to a decline in adjusted EBITDA and an increase in the acquisition of property and
equipment to support our growth initiatives.
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,
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 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.
Non-GAAP Financial Measures
Revenue ex-TAC. Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue less
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 in
Note 19—“Search Agreement with Microsoft Corporation” in the Notes to our consolidated financial
statements, 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 arrangements but address the impact of TAC
differently. Management compensates for these limitations by also relying on the comparable GAAP
financial measures of revenue and total operating expenses, which include TAC in non-transitioned
markets.
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