Yahoo 2014 Annual Report Download - page 52

The completion of the transaction is expected to occur in the fourth quarter of 2015 after the
expiration of our one-year lock-up agreement relating to the Alibaba Group shares entered into in
connection with the Alibaba Group IPO. The transaction is subject to certain conditions, including
final approval by our Board, receipt of a favorable ruling from the Internal Revenue Service with
respect to certain aspects of the transaction and a legal opinion with respect to the tax-free
treatment of the transaction under U.S. federal tax laws and regulations, the 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
details of the transaction, including the distribution ratio, will be determined prior to the closing of
the transaction.
Upon closing of the transaction, which is subject to the conditions specified above, our consolidated
financial position will be materially impacted as the Alibaba Group shares and related deferred tax
liabilities will be removed from our consolidated balance sheet with a corresponding reduction of our
stockholders’ equity balance. We would no longer hold any Alibaba Group shares and would no
longer record changes in fair value within comprehensive income (loss).
Patent Sale and License Agreement
During the second quarter of 2014, we entered into a patent sale and license agreement for total cash
consideration of $460 million. The total consideration was allocated based on the estimated relative
fair value of each of the elements of the agreement: $61 million was allocated to the sale of patents
(“Sold Patents”), $135 million to the license to existing patents (“Existing Patents”) and $264 million
to the license of patents developed or acquired in the next five years (“Capture Period Patents”). We
recorded $61 million as a gain on the Sold Patents during the year ended December 31, 2014. We
recognized $43 million in revenue related to the Existing Patents and Capture Period Patents during
the year ended December 31, 2014. The amounts allocated to the license of the Existing Patents will
be recorded as revenue over the four year payment period when payments are due. The amounts
allocated to the Capture Period Patents will be recorded as revenue over the five year capture
period.
See “Operating Costs and Expenses—Gains on Sales of Patents” for additional information on gains
recorded for the years ended December 31, 2013 and 2014.
Search Agreement with Microsoft Corporation
The term of the Search Agreement is 10 years from its commencement date, February 23, 2010,
subject to earlier termination as provided in the Search Agreement. During the first five years of the
term of the Search Agreement, in the transitioned markets, we were entitled to receive 88 percent of
the revenue (the “Revenue Share Rate”) generated from Microsoft’s services on Yahoo Properties
and from Microsoft’s services on Affiliate sites after deduction of the Affiliate’s share of revenue and
certain Microsoft costs for new Affiliates and for all Affiliates (including existing Affiliates) after the
first five years. As of February 23, 2015, the Revenue Share Rate increased to 90 percent 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 Affiliates are recorded on a net basis as a
reduction of revenue. The underlying search advertising services are provided by Microsoft. Revenue
under the Search Agreement represented approximately 25 percent, 31 percent, and 35 percent of
our revenue for the years ended December 31, 2012, 2013, and 2014, respectively.
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