SEC Filing | Altaba Inc.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-28018

Yahoo! Inc.

(Exact name of Registrant as specified in its charter)

Delaware

77-0398689

(State or other jurisdiction of

incorporation or organization)

(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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at July 31, 2013
Common Stock, $0.001 par value		1,020,321,185

YAHOO! INC.

Table of Contents


PART I	FINANCIAL INFORMATION	3

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2013 (unaudited)	3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2013 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2013 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2013 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	49

PART II	OTHER INFORMATION	50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

Item 3.	Defaults Upon Senior Securities	62

Item 4.	Mine Safety Disclosures	62

Item 5.	Other Information	62

Item 6.	Exhibits	62

	Signatures	63

PART I — FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

YAHOO! INC.

Condensed Consolidated Balance Sheets


	December 31, 2012			June 30, 2013
	(Unaudited, in thousands except par values)
ASSETS
Current assets:
Cash and cash equivalents	$	2,667,778		$	1,142,223
Short-term marketable securities		1,516,175			1,486,591
Accounts receivable, net		1,008,448			941,811
Prepaid expenses and other current assets		460,312			887,677

Total current assets		5,652,713			4,458,302
Long-term marketable securities		1,838,425			2,161,814
Alibaba Group Preference Shares		816,261			—
Property and equipment, net		1,685,845			1,579,822
Goodwill		3,826,749			4,582,588
Intangible assets, net		153,973			398,300
Other long-term assets		289,130			171,210
Investments in equity interests		2,840,157			2,874,387

Total assets	$	17,103,253		$	16,226,423

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	184,831		$	120,028
Accrued expenses and other current liabilities		808,475			763,117
Deferred revenue		296,926			294,968

Total current liabilities		1,290,232			1,178,113
Long-term deferred revenue		407,560			333,229
Capital lease and other long-term liabilities		124,587			125,639
Deferred and other long-term tax liabilities, net		675,271			730,708

Total liabilities		2,497,650			2,367,689
Commitments and contingencies (Note 11)		—			—
Yahoo! Inc. stockholders’ equity:
Common stock, $0.001 par value; 5,000,000 shares authorized; 1,189,816 shares issued and 1,115,233 shares outstanding as of December 31, 2012 and 1,203,061 shares issued and 1,065,046 shares outstanding as of June 30, 2013		1,187			1,198
Additional paid-in capital		9,563,348			9,770,201
Treasury stock at cost, 74,583 shares as of December 31, 2012 and 138,015 shares as of June 30, 2013		(1,368,043	)		(2,795,869	)
Retained earnings		5,792,459			6,513,894
Accumulated other comprehensive income		571,249			319,440

Total Yahoo! Inc. stockholders’ equity		14,560,200			13,808,864
Noncontrolling interests		45,403			49,870

Total equity		14,605,603			13,858,734

Total liabilities and equity	$	17,103,253		$	16,226,423

The accompanying notes are an integral part of these condensed consolidated financial statements.

YAHOO! INC.

Condensed Consolidated Statements of Income


	Three Months Ended						Six Months Ended
	June 30, 2012			June 30, 2013			June 30, 2012			June 30, 2013
	(Unaudited, in thousands except per share amounts)
Revenue	$	1,217,794		$	1,135,244		$	2,439,027		$	2,275,612
Operating expenses:
Cost of revenue — traffic acquisition costs		137,025			64,316			281,116			130,384
Cost of revenue — other		278,453			271,262			532,432			549,269
Sales and marketing		272,910			279,738			558,178			536,757
Product development		199,628			236,248			428,106			455,828
General and administrative		136,117			135,039			260,388			268,460
Amortization of intangibles		9,756			8,084			19,809			15,449
Restructuring charges (reversals), net		129,092			3,578			134,809			(3,484	)

Total operating expenses		1,162,981			998,265			2,214,838			1,952,663

Income from operations		54,813			136,979			224,189			322,949
Other income, net		20,175			23,606			22,453			40,678

Income before income taxes and earnings in equity interests		74,988			160,585			246,642			363,627
Provision for income taxes		(26,523	)		(50,267	)		(82,942	)		(80,003	)
Earnings in equity interests		179,991			224,690			352,234			442,278

Net income		228,456			335,008			515,934			725,902
Net income attributable to noncontrolling interests		(1,825	)		(3,858	)		(2,960	)		(4,467	)

Net income attributable to Yahoo! Inc.	$	226,631		$	331,150		$	512,974		$	721,435

Net income attributable to Yahoo! Inc. common stockholders per share — basic	$	0.19		$	0.31		$	0.42		$	0.66

Net income attributable to Yahoo! Inc. common stockholders per share — diluted	$	0.18		$	0.30		$	0.42		$	0.65

Shares used in per share calculation — basic		1,213,320			1,079,389			1,214,551			1,086,780

Shares used in per share calculation — diluted		1,221,719			1,094,694			1,224,102			1,101,395

Stock-based compensation expense by function:
Cost of revenue — other	$	2,614		$	3,029		$	5,508		$	6,607
Sales and marketing	$	18,981		$	23,775		$	40,078		$	39,820
Product development	$	17,808		$	20,537		$	37,279		$	28,800
General and administrative	$	10,168		$	20,795		$	22,672		$	37,514
Restructuring expense reversals	$	(3,429	)	$	—		$	(3,429	)	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

YAHOO! INC.

Condensed Consolidated Statements of Comprehensive Income


	Three Months Ended						Six Months Ended
	June 30, 2012			June 30, 2013			June 30, 2012			June 30, 2013
	(Unaudited, in thousands)
Net income	$	228,456		$	335,008		$	515,934		$	725,902

Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities, net of taxes of $106 and $2,862 for the three months ended June 30, 2012 and 2013, respectively, and $206 and $3,017 for the six months ended June 30, 2012 and 2013, respectively		6,143			3,031			5,680			4,069
Reclassification adjustment for realized (gains) losses on available-for-sale securities included in net income, net of taxes of $(932) and $150 for the three months ended June 30, 2012 and 2013, respectively, and $(5,356) and $173 for the six months ended June 30, 2012 and 2013, respectively		1,630			(251	)		9,358			(290	)

Net change in unrealized gains (losses) on available-for-sale securities, net of tax		7,773			2,780			15,038			3,779

Foreign currency translation adjustments (“CTA”):
Foreign CTA gains (losses), net of tax		(231,371	)		(243,854	)		(221,137	)		(525,359	)
Net investment hedge CTA gains (losses), net of tax		—			101,023			—			269,737

Net foreign CTA gains (losses), net of tax		(231,371	)		(142,831	)		(221,137	)		(255,622	)

Cash flow hedges:
Unrealized gains on cash flow hedges, net of tax		—			11			—			11
Reclassification adjustment for cash flow hedges, net of tax		—			23			—			23

Net change in unrealized gains on cash flow hedges, net of tax		—			34			—			34

Other comprehensive income (loss)		(223,598	)		(140,017	)		(206,099	)		(251,809	)

Comprehensive income		4,858			194,991			309,835			474,093
Less: comprehensive income attributable to noncontrolling interests		(1,825	)		(3,858	)		(2,960	)		(4,467	)

Comprehensive income attributable to Yahoo! Inc.	$	3,033		$	191,133		$	306,875		$	469,626

The accompanying notes are an integral part of these condensed consolidated financial statements.

YAHOO! INC.

Condensed Consolidated Statements of Cash Flows


	Six Months Ended
	June 30, 2012			June 30, 2013
	(Unaudited, in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	515,934		$	725,902
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		254,539			285,290
Amortization of intangible assets		60,209			37,477
Stock-based compensation expense, net		102,108			112,741
Non-cash restructuring charges		38,638			547
Dividend income related to Alibaba Group Preference Shares		—			(35,726	)
Dividends received from equity investees		83,648			135,058
Tax benefits (detriments) from stock-based awards		(3,935	)		9,725
Excess tax benefits from stock-based awards		(16,770	)		(18,513	)
Deferred income taxes		(18,474	)		(27,997	)
Earnings in equity interests		(352,234	)		(442,278	)
(Gain) loss from sales of investments, assets, and other, net		(18,962	)		13,175
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		(9,908	)		58,510
Prepaid expenses and other		11,018			(99,568	)
Accounts payable		(35,714	)		(59,754	)
Accrued expenses and other liabilities		(15,755	)		(69,761	)
Deferred revenue		(22,329	)		(75,318	)

Net cash provided by operating activities		572,013			549,510

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net		(215,922	)		(151,657	)
Purchases of marketable securities		(645,266	)		(2,244,302	)
Proceeds from sales of marketable securities		548,439			1,458,593
Proceeds from maturities of marketable securities		198,498			462,406
Proceeds related to the redemption of Alibaba Group Preference Shares		—			800,000
Proceeds from the sale of investments		26,132			—
Acquisitions, net of cash acquired		—			(1,024,157	)
Purchases of intangible assets		(3,088	)		(2,052	)
Other investing activities, net		(9,421	)		(3,139	)

Net cash used in investing activities		(100,628	)		(704,308	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net		77,871			123,092
Repurchases of common stock		(526,007	)		(1,427,825	)
Excess tax benefits from stock-based awards		16,770			18,513
Tax withholdings related to net share settlements of restricted stock units		(38,494	)		(51,137	)
Other financing activities, net		(2,222	)		(2,778	)

Net cash used in financing activities		(472,082	)		(1,340,135	)

Effect of exchange rate changes on cash and cash equivalents		(22,424	)		(30,622	)
Net change in cash and cash equivalents		(23,121	)		(1,525,555	)
Cash and cash equivalents at beginning of period		1,562,390			2,667,778

Cash and cash equivalents at end of period	$	1,539,269		$	1,142,223

The accompanying notes are an integral part of these condensed consolidated financial statements.

YAHOO! INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company. Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!” or the “Company”), is focused on making the world’s daily habits inspiring and entertaining. By creating highly personalized experiences for its users, the Company keeps people connected to what matters most to them, across devices and around the world. The Company creates value for advertisers by connecting them with the audiences that build their businesses. Advertisers can build their businesses through advertising to targeted audiences on the Company’s online properties and services (“Yahoo! Properties”), or through a distribution network of third-party entities (“Affiliates”) who integrate the Company’s advertising offerings into their Websites or other offerings (those Websites and other offerings, “Affiliate sites”).

Basis of Presentation. The condensed consolidated financial statements include the accounts of Yahoo! Inc. and its majority-owned or otherwise controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the condensed consolidated balance sheets. The Company has included the results of operations of acquired companies from the date of the acquisition. Certain prior period amounts have been reclassified to conform to the current period presentation.

The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue, the useful lives of long-lived assets including property and equipment and intangible assets, investment fair values, stock-based compensation, goodwill, income taxes, contingencies, and restructuring charges. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results may differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2012 was derived from the Company’s audited financial statements for the year ended December 31, 2012, but does not include all disclosures required by U.S. GAAP. However, the Company believes the disclosures are adequate to make the information presented not misleading.

Note 2 INVESTMENTS AND FAIR VALUE MEASUREMENTS

The following tables summarize the investments in available-for-sale securities (in thousands):


	December 31, 2012
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Government and agency securities	$	1,312,876	$	985	$	(45	)	$	1,313,816
Corporate debt securities, commercial paper, and bank certificates of deposit		2,039,809		1,597		(622	)		2,040,784
Corporate equity securities		230		—		(33	)		197
Alibaba Group Preference Shares		816,261		—		—			816,261

Total investments in available-for-sale securities	$	4,169,176	$	2,582	$	(700	)	$	4,171,058


	June 30, 2013
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Government and agency securities	$	815,125	$	283	$	(823	)	$	814,585
Corporate debt securities, commercial paper, and bank certificates of deposit		2,834,690		686		(6,692	)		2,828,684
Corporate equity and other marketable securities		5,366		19		—			5,385

Total investments in available-for-sale securities	$	3,655,181	$	988	$	(7,515	)	$	3,648,654


	December 31, 2012		June 30, 2013
Reported as:
Short-term marketable securities	$	1,516,175	$	1,486,591
Long-term marketable securities		1,838,425		2,161,814
Alibaba Group Preference Shares		816,261		—
Other assets		197		249

Total	$	4,171,058	$	3,648,654

Available-for-sale securities included in cash and cash equivalents on the condensed consolidated balance sheets are not included in the table above as the gross unrealized gains and losses were immaterial as of December 31, 2012 and June 30, 2013 as the carrying value approximates fair value because of the short maturity of those instruments. Realized gains and losses from sales of marketable securities were not material for the three and six months ended June 30, 2012 and 2013.

The contractual maturities of available-for-sale marketable securities were as follows (in thousands):


	December 31, 2012		June 30, 2013
Due within one year	$	1,516,175	$	1,486,591
Due after one year through five years		1,838,425		2,161,814

Total available-for-sale marketable securities	$	3,354,600	$	3,648,405

The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	December 31, 2012
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government and agency securities	$	165,025	$	(45	)	$	—	$	—	$	165,025	$	(45	)
Corporate debt securities, commercial paper, and bank certificates of deposit		729,046		(622	)		—		—		729,046		(622	)
Corporate equity securities		197		(33	)		—		—		197		(33	)

Total investments in available-for-sale securities	$	894,268	$	(700	)	$	—	$	—	$	894,268	$	(700	)


	June 30, 2013
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government and agency securities	$	428,008	$	(823	)	$	—	$	—	$	428,008	$	(823	)
Corporate debt securities, commercial paper, and bank certificates of deposit		1,944,015		(6,692	)		—		—		1,944,015		(6,692	)

Total investments in available-for-sale securities	$	2,372,023	$	(7,515	)	$	—	$	—	$	2,372,023	$	(7,515	)

The Company’s investment portfolio consists of liquid high-quality fixed income government, agency, and corporate debt securities, money market funds, and time deposits with financial institutions. Investments in fixed rate instruments carry a degree of interest rate risk. Fixed rate securities may have their fair value adversely impacted due to a rise in interest rates or by a deterioration of the credit quality of the issuer. The longer the term of the securities, the more susceptible they are to 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 for securities held.

The Company’s investment in the Alibaba Group Preference Shares is presented as an asset carried at fair value on the Company’s condensed consolidated balance sheets as of December 31, 2012. As of December 31, 2012, the carrying value of the Alibaba Group Preference Shares approximated the fair value. As of December 31, 2012, the total fair value of the Alibaba Group Preferences Shares was $822 million, which included $6 million of accrued dividend income recorded within prepaid expenses and other current assets and $16 million of accrued dividend income recorded as part of the carrying value of the Alibaba Group Preference Shares. On May 16, 2013, Alibaba Group exercised its right to redeem the Alibaba Group Preference Shares for $846 million in cash. The cash received represented the redemption value, which included the stated value of $800 million plus accrued dividends of $46 million.

The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value hierarchy as of December 31, 2012 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2			Level 3		Total
Money market funds⁽¹⁾	$	685,707	$	—		$	—	$	685,707
Available-for-sale securities:
Government and agency securities⁽¹⁾		—		2,464,227			—		2,464,227
Commercial paper and bank certificates of deposit⁽¹⁾		—		892,769			—		892,769
Corporate debt securities⁽¹⁾		—		1,298,123			—		1,298,123
Time deposits		—		84,555			—		84,555
Alibaba Group Preference Shares		—		—			816,261		816,261
Corporate equity securities⁽²⁾		197		—			—		197
Foreign currency derivative contracts⁽³⁾		—		5,007			—		5,007

Available-for-sale securities at fair value	$	685,904	$	4,744,681		$	816,261	$	6,246,846
Liabilities
Foreign currency derivative contracts⁽³⁾		—		(6,662	)		—		(6,662	)

Total assets and liabilities at fair value	$	685,904	$	4,738,019		$	816,261	$	6,240,184

The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value hierarchy as of June 30, 2013 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2			Level 3		Total
Money market funds⁽¹⁾	$	461,628	$	—		$	—	$	461,628
Available-for-sale securities:
Government and agency securities⁽¹⁾		—		831,917			—		831,917
Commercial paper and bank certificates of deposit⁽¹⁾		—		455,838			—		455,838
Corporate debt securities⁽¹⁾		—		2,372,846			—		2,372,846
Time deposits		—		74,687			—		74,687
Corporate equity and other marketable securities⁽²⁾		249		5,137			—		5,386
Foreign currency derivative contracts⁽³⁾		—		438,692			—		438,692

Available-for-sale securities at fair value	$	461,877	$	4,179,117		$	—	$	4,640,994
Liabilities
Foreign currency derivative contracts⁽³⁾		—		(2,017	)		—		(2,017	)

Total assets and liabilities at fair value	$	461,877	$	4,177,100		$	—	$	4,638,977

⁽¹⁾	The money market funds, government and agency securities, commercial paper and bank certificates of deposit, and corporate debt securities are classified as part of either cash and cash equivalents or investments in marketable securities in the condensed consolidated balance sheets.

⁽²⁾	The corporate equity securities are classified as part of the other long-term assets and other marketable securities are classified as investments in marketable securities in the condensed consolidated balance sheets.

⁽³⁾

Foreign currency derivative contracts are classified as part of either other current assets or other liabilities in the condensed consolidated balance sheets. The notional amounts of the foreign currency derivative contracts were $3.4 billion, including contracts designated as net investment hedges of $3 billion, as of December 31, 2012, and $4 billion, including contracts designated as net investment hedges of $3.5 billion, as of June 30, 2013.

The amount of cash and cash equivalents as of December 31, 2012 and June 30, 2013 included $597 million and $589 million, respectively, in cash deposits.

The fair values of the Company’s Level 1 financial assets and liabilities are based on quoted market prices of the identical underlying security. The fair values of the Company’s Level 2 financial assets and liabilities are obtained using quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices e.g. interest rates and yield curves. The Company utilizes a pricing service to assist in obtaining fair value pricing for the majority of the investment portfolio. The Company classified its investment in the Alibaba Group Preference Shares within Level 3 because it was valued using significant unobservable inputs. To estimate the fair value as of December 31, 2012, the Company performed benchmarking by comparing the terms and conditions of the Alibaba Group Preference Shares to dividend rates, subordination terms, and credit ratings of those of similar type instruments. The Company conducts reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

Activity between Levels of the Fair Value Hierarchy. During the year ended December 31, 2012, the Company did not make any transfers between Level 1, Level 2, or Level 3 assets or liabilities. During the six months ended June 30, 2013, the Company did not make any transfers between Level 1 and Level 2 assets or liabilities.

Note 3 CONSOLIDATED FINANCIAL STATEMENT DETAILS

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income were as follows (in thousands):


	December 31, 2012		June 30, 2013
Unrealized gains on available-for-sale securities, net of tax	$	9,121	$	12,900
Foreign currency translation, net of tax		562,128		306,540

Accumulated other comprehensive income	$	571,249	$	319,440

Noncontrolling Interests

Noncontrolling interests were as follows (in thousands):


	December 31, 2012		June 30, 2013
Beginning noncontrolling interests	$	40,280	$	45,403
Net income attributable to noncontrolling interests		5,123		4,467

Ending noncontrolling interests	$	45,403	$	49,870

Other Income, Net

Other income, net was as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Interest, dividend, and investment income	$	3,584	$	21,934	$	9,280	$	47,852
Other		16,591		1,672		13,173		(7,174	)

Total other income, net	$	20,175	$	23,606	$	22,453	$	40,678

Interest, dividend and investment income consists of income earned from cash in bank accounts, investments made in marketable securities and money market funds, and dividend income on the Alibaba Group Preference Shares.

Other consists of gains and losses 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, foreign exchange gains and losses on balance sheet hedges, and other non-operating items.

Reclassifications Out of Accumulated Other Comprehensive Income

Reclassifications out of accumulated other comprehensive income for the three months ended June 30, 2013 were as follows (in thousands):


	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
Realized losses on cash flow hedges, net of tax	$	23			Revenue
Realized gains on available-for-sale securities, net of tax		(251	)		Other income, net

Total reclassifications for the period	$	(228	)

Reclassifications out of accumulated other comprehensive income for the six months ended June 30, 2013 were as follows (in thousands):


	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
Realized losses on cash flow hedges, net of tax	$	23			Revenue
Realized gains on available-for-sale securities, net of tax		(290	)		Other income, net

Total reclassifications for the period	$	(267	)

Note 4 ACQUISITIONS

Transactions completed in 2013

Tumblr. On June 19, 2013, the Company completed the acquisition of Tumblr, Inc. (“Tumblr”), a blog-hosting website that allows users to post their own content as well as follow or re-blog posts made by other users. The acquisition of Tumblr is expected to bring a significant community of users to the Yahoo! network.

The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired from Tumblr and, as a result, the Company recorded goodwill in connection with this transaction. Under the terms of the agreement, the Company acquired all of the equity interests (including all outstanding vested options) in Tumblr. Tumblr stockholders and vested optionholders were paid in cash, outstanding Tumblr unvested options and restricted stock units were assumed and converted into equivalent awards covering Yahoo! common stock and a portion of the Tumblr shares held by its founder were exchanged for Yahoo! common stock.

The total purchase price of approximately $990 million consisted mainly of cash consideration. The preliminary allocation of the purchase price of the assets acquired and liabilities assumed based on their fair values was as follows (in thousands):


Cash and marketable securities acquired	$	16,587
Other tangible assets acquired		73,978
Amortizable intangible assets:
Developed technology		23,700
Customer contracts and related relationships		182,400
Trade name		56,500
Goodwill		750,893

Total assets acquired		1,104,058
Liabilities assumed		(113,847	)

Total	$	990,211

In connection with the acquisition, the Company is recognizing stock-based compensation expense of $70 million over a period of up to 4 years. This amount is comprised of the assumed unvested stock options and restricted stock units, valued at $29 million, and the Yahoo! common stock, valued at $41 million, issued to Tumblr’s founder but subject to holdback and release over four years provided he remains an employee of the Company. In addition, the transaction resulted in contingent cash consideration of $40 million to be paid to Tumblr’s founder over 4 years provided that Tumblr’s founder remains an employee of the Company. Such cash payments will be recognized as compensation expense over the 4-year service period.

The amortizable intangible assets have useful lives not exceeding 6 years and a weighted average useful life of 6 years. No amounts have been allocated to in-process research and development and $751 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and is not deductible for tax purposes. This acquisition is expected to bring a significant community of users to the Yahoo! network by deploying Yahoo!’s personalization technology and search infrastructure to deliver relevant content to the Tumblr user base. Operating results from the date of acquisition were not significant to the Company’s consolidated results of operations.

Other Acquisitions — Business Combinations. During the six months ended June 30, 2013, the Company acquired nine other companies, which were accounted for as business combinations. The total aggregate purchase price for these other acquisitions was $54 million. The total cash consideration of $54 million less cash acquired of $1 million resulted in a net cash outlay of $53 million. The preliminary allocation of the purchase price of the assets and liabilities assumed based on their relative fair values was $42 million allocated to goodwill, $18 million to amortizable intangible assets, $1 million to cash acquired, and $7 million to assumed liabilities.

The Company’s business combinations completed during the six months ended June 30, 2013 did not have a material impact on the Company’s condensed consolidated financial statements, and therefore pro forma disclosures have not been presented.

Transactions completed in 2012

The Company did not make any acquisitions during the six months ended June 30, 2012.

Note 5 GOODWILL

The Company’s goodwill balance was $3.8 billion as of December 31, 2012, of which $2.9 billion was recorded in the Americas segment, $0.6 billion in the EMEA (Europe, Middle East and Africa) segment, and $0.3 billion in the Asia Pacific segment. As of June 30, 2013, the Company’s goodwill balance was $4.6 billion, of which $2.9 billion was recorded in the Americas segment, $0.6 billion in the EMEA segment, $0.3 billion in the Asia Pacific segment and $0.8 billion is related to Tumblr. The increase in the carrying amount of goodwill of $756 million reflected on the Company’s condensed consolidated balance sheets during the six months ended June 30, 2013 was primarily due to additions to goodwill of $793 million related to acquisitions made during the six months ended June 30, 2013 offset by net foreign currency translation losses of $37 million. The goodwill recorded in connection with the Tumblr acquisition is not yet allocated to a reporting segment as the Company is currently evaluating how it will report this acquisition for segment reporting purposes.

Note 6 INTANGIBLE ASSETS, NET

The following table summarizes the Company’s intangible assets, net (in thousands):


	December 31, 2012		June 30, 2013
	Net		Gross Carrying Amount		Accumulated Amortization^(*)			Net
Customer, affiliate, and advertiser related relationships	$	62,393	$	314,112	$	(84,035	)	$	230,077
Developed technology and patents		71,634		216,961		(123,398	)		93,563
Trade names, trademarks, and domain names		19,946		106,882		(32,222	)		74,660

Total intangible assets, net	$	153,973	$	637,955	$	(239,655	)	$	398,300

^(*)	Cumulative foreign currency translation adjustments, reflecting movement in the currencies of the underlying entities increased total intangible assets by approximately $18 million as of June 30, 2013.

For the three months ended June 30, 2012 and 2013, the Company recognized amortization expense for intangible assets of $29 million and $19 million, respectively, including $19 million and $11 million in cost of revenue—other for the three months ended June 30, 2012 and 2013, respectively. For the six months ended June 30, 2012 and 2013, the Company recognized amortization expense for intangible assets of $60 million and $37 million, respectively, including $40 million and $22 million in cost of revenue—other for the six months ended June 30, 2012 and 2013, respectively. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for the remainder of 2013 and each of the succeeding years is as follows: six months ending December 31, 2013: $54 million; 2014: $90 million; 2015: $69 million; 2016: $45 million; and thereafter $125 million.

Note 7 BASIC AND DILUTED NET INCOME ATTRIBUTABLE TO YAHOO! INC. COMMON STOCKHOLDERS PER SHARE

Basic and diluted net income attributable to Yahoo! common stockholders per share is computed using the weighted average number of common shares outstanding during the period, excluding net income attributable to participating securities (restricted stock units granted under the 1996 Directors’ Stock Plan (the “Directors’ Plan”)). Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares are calculated using the treasury stock method and consist of shares underlying unvested restricted stock units, the incremental common shares issuable upon the exercise of stock options, and shares to be purchased under the 1996 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”). The Company calculates potential tax windfalls and shortfalls by including the impact of pro forma deferred tax assets.

The Company takes into account the effect on consolidated net income per share of dilutive securities of entities in which the Company holds equity interests that are accounted for using the equity method.

Potentially dilutive securities representing approximately 47 million and 48 million shares of common stock for the three and six months ended June 30, 2012, respectively, and 10 million and 17 million shares of common stock for the three and six months ended June 30, 2013, respectively, were excluded from the computation of diluted earnings per share for these periods because their effect would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):


	Three Months Ended						Six Months Ended
	June 30, 2012			June 30, 2013			June 30, 2012			June 30, 2013
*Basic:*
Numerator:
Net income attributable to Yahoo! Inc.	$	226,631		$	331,150		$	512,974		$	721,435
Less: Net income allocated to participating securities		(3	)		(7	)		(12	)		(18	)

Net income attributable to Yahoo! Inc. common stockholders — basic	$	226,628		$	331,143		$	512,962		$	721,417

Denominator:
Weighted average common shares		1,213,320			1,079,389			1,214,551			1,086,780

Net income attributable to Yahoo! Inc. common stockholders per share — basic	$	0.19		$	0.31		$	0.42		$	0.66

*Diluted:*
Numerator:
Net income attributable to Yahoo! Inc.	$	226,631		$	331,150		$	512,974		$	721,435
Less: Net income allocated to participating securities		(3	)		(7	)		(12	)		(18	)
Less: Effect of dilutive securities issued by equity investees		(1,246	)		(3,619	)		(2,512	)		(5,738	)

Net income attributable to Yahoo! Inc. common stockholders — diluted	$	225,382		$	327,524		$	510,450		$	715,679

Denominator:
Denominator for basic calculation		1,213,320			1,079,389			1,214,551			1,086,780
Weighted average effect of Yahoo! Inc. dilutive securities:
Restricted stock units		6,756			12,140			7,871			11,784
Stock options and employee stock purchase plan		1,643			3,165			1,680			2,831

Denominator for diluted calculation		1,221,719			1,094,694			1,224,102			1,101,395

Net income attributable to Yahoo! Inc. common stockholders per share — diluted	$	0.18		$	0.30		$	0.42		$	0.65

Note 8 INVESTMENTS IN EQUITY INTERESTS

The following table summarizes the Company’s investments in equity interests (dollars in thousands):


	December 31, 2012		Percent Ownership			June 30, 2013		Percent Ownership
Alibaba Group	$	276,389		24	%	$	617,021		24	%
Yahoo Japan		2,555,717		35	%		2,254,097		35	%
Other		8,051		24	%		3,269		24	%

Total	$	2,840,157				$	2,874,387

Equity Investment in Alibaba Group. The investment in Alibaba Group is being accounted for using the equity method, and the total investment, including net tangible assets, identifiable intangible assets, and goodwill, is classified as part of the investments in equity interests balance on the Company’s condensed consolidated balance sheets.

The Company’s accounting policy is to record its share of the results of Alibaba Group, and any related amortization expense and related tax impact, one quarter in arrears within earnings in equity interests in the condensed consolidated statements of income. As of June 30, 2013, Alibaba Group’s common shareholders’ equity is a net deficit as a result of the repurchase of its ordinary shares from the Company at fair value, which was significantly in excess of the book value per share. The Company’s remaining investment balance represents excess cost largely attributable to goodwill.

Initial Repurchase by Alibaba Group. On September 18, 2012 (the “Repurchase Closing Date”), Alibaba Group repurchased 523 million of the 1,047 million ordinary shares of Alibaba Group (the “Shares”) owned by the Company (the “Initial Repurchase”). The Initial Repurchase was made pursuant to the terms of the Share Repurchase and Preference Share Sale Agreement entered into by

Yahoo! Inc., Alibaba Group and Yahoo! Hong Kong Holdings Limited, a Hong Kong corporation and wholly-owned subsidiary of Yahoo! Inc. (“YHK”) on May 20, 2012 (as amended on September 11, 2012, the “Repurchase Agreement”). Yahoo! received $13.54 per Share, or approximately $7.1 billion in total consideration, for 523 million Shares sold to Alibaba Group. Approximately $6.3 billion of the consideration was received in cash and $800 million was received in Alibaba Group Preference Shares, which Alibaba Group redeemed on May 16, 2013. The Initial Repurchase resulted in a pre-tax gain of approximately $4.6 billion for the year ended December 31, 2012. Yahoo! will continue to account for its remaining approximately 24 percent ownership interest in Alibaba Group under the equity method.

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. The Alibaba Group Preference Shares were callable by Alibaba Group at the redemption value (including accrued dividends). On May 16, 2013, the Company received $846 million in cash from Alibaba Group to redeem the Alibaba Group Preference Shares. The cash received represented the redemption value, which included the stated value of $800 million plus accrued dividends of $46 million.

The Repurchase Agreement provides that at the time Alibaba Group completes an initial public offering meeting certain specified criteria (a “Qualified IPO”), Yahoo! and YHK will sell, at Alibaba Group’s election (either directly to Alibaba Group or in the Qualified IPO), up to 261.5 million of their remaining Shares. If Shares are sold back to Alibaba Group in the Qualified IPO, the purchase price per Share will be equal to the per share price in the Qualified IPO less specified fees and underwriter discounts.

On the Repurchase Closing Date, the Company and Alibaba Group entered into an amendment of their existing Technology and Intellectual Property License Agreement (the “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. The Company will recognize this revenue over the remaining four-year term of the TIPLA. For the three and six months ended June 30, 2013, the Company recognized approximately $34 million and $69 million, respectively, in revenue related to the initial payment. Alibaba Group will continue making royalty payments until the earlier of the fourth anniversary of the effective date of the amendment and a Qualified IPO. The Company recognized revenue relating to the continuing royalty payments under the TIPLA of approximately $14 million and $21 million for the three months ended June 30, 2012 and 2013, respectively, and approximately $32 million and $56 million for the six months ended June 30, 2012 and 2013, respectively.

The following table presents Alibaba Group’s U.S. GAAP financial information, as derived from the Alibaba Group financial statements (in thousands):


	Three Months Ended				Six Months Ended
	March 31, 2012		March 31, 2013		March 31, 2012		March 31, 2013
Operating data:
Revenue	$	805,900	$	1,381,644	$	1,828,707	$	3,222,093
Gross profit	$	530,537	$	1,018,056	$	1,227,376	$	2,365,932
Income from operations	$	213,262	$	708,897	$	489,921	$	1,461,482
Net income	$	235,208	$	679,537	$	488,773	$	1,329,514
Net income attributable to Alibaba Group	$	220,483	$	668,676	$	457,395	$	1,310,849


	September 30, 2012		March 31, 2013
Balance sheet data^(*):
Current assets	$	4,062,823	$	6,859,961
Long-term assets	$	3,204,144	$	3,315,066
Current liabilities	$	2,624,656	$	3,809,376
Long-term liabilities	$	4,705,347	$	4,603,806
Convertible preferred shares	$	1,317,526	$	1,680,376
Noncontrolling interests	$	65,907	$	85,449

^(*)

In the three months ended June 30, 2012, Alibaba Group purchased the remaining noncontrolling interest in Alibaba.com for total consideration of approximately $2.5 billion. The purchase was primarily financed by the issuance of debt. The excess of consideration over book value of the noncontrolling interest was recorded as a reduction to the shareholders’ equity of Alibaba Group, which increased the Company’s excess cost related to its investment in Alibaba Group.

Equity Investment in Yahoo Japan. The investment in Yahoo Japan Corporation (“Yahoo Japan”) is being accounted for using the equity method and the total investment, including net tangible assets, identifiable intangible assets, and goodwill, is classified as part of the investments in equity interests balance on the Company’s condensed 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 the condensed consolidated statements of income.

The Company makes adjustments to the earnings in equity interests line in the condensed consolidated statements of income for any differences between U.S. GAAP and accounting principles generally accepted in Japan (“Japanese GAAP”), the standards by which Yahoo Japan’s financial statements are prepared.

The fair value of the Company’s ownership interest in the common stock of Yahoo Japan, based on the quoted stock price, was approximately $10 billion as of June 30, 2013.

During the three and six months ended June 30, 2012 and 2013, the Company received cash dividends from Yahoo Japan in the amount of $84 million and $77 million, net of withholding taxes, respectively, which were recorded as reductions to the Company’s investment in Yahoo Japan.

The following tables present summarized financial information derived from Yahoo Japan’s consolidated financial statements, which are prepared on the basis of Japanese GAAP. The Company has made adjustments to the Yahoo Japan financial information to address differences between Japanese GAAP and U.S. GAAP that materially impact the summarized financial information below. Due to these adjustments, the Yahoo Japan summarized financial information presented below is not materially different than such information presented on the basis of U.S. GAAP.


	Three Months Ended				Six Months Ended
	March 31, 2012		March 31, 2013		March 31, 2012		March 31, 2013
	(in thousands)
Operating data:
Revenue	$	1,069,974	$	1,121,453	$	2,139,301	$	2,278,643
Gross profit	$	919,132	$	934,003	$	1,816,840	$	1,915,065
Income from operations	$	585,443	$	551,488	$	1,127,941	$	1,165,980
Net income	$	348,093	$	348,297	$	650,697	$	691,711
Net income attributable to Yahoo Japan	$	346,899	$	346,163	$	648,092	$	686,713


	September 30, 2012		March 31, 2013
	(In thousands)
Balance sheet data:
Current assets	$	5,752,826	$	6,116,952
Long-term assets	$	1,837,829	$	1,709,526
Current liabilities	$	1,167,772	$	2,034,305
Long-term liabilities	$	49,461	$	42,217
Noncontrolling interests	$	31,034	$	76,654

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 by Yahoo Japan. The Company recorded revenue from Yahoo Japan of approximately $66 million and $63 million for the three months ended June 30, 2012 and 2013, respectively, and approximately $136 million and $134 million for the six months ended June 30, 2012 and 2013, respectively. As of December 31, 2012 and June 30, 2013, the Company had net receivable balances from Yahoo Japan of approximately $43 million and $51 million, respectively.

Note 9 DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments, primarily forward contracts, to mitigate risk associated with adverse movements in foreign currency exchange rates.

The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. The Company presents its derivative assets and liabilities at their gross fair values on the condensed consolidated balance sheets.

Net Investment Hedges. In December 2012, the Company started hedging, on an after-tax basis, its net investment in Yahoo Japan with forward contracts to reduce the risk that its investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. At inception, the forward contracts had maturities ranging from 9 to 15 months. The Company applies hedge accounting on its forward contracts for the net investment hedge of Yahoo Japan. The after-tax net investment hedge was less than the Yahoo Japan investment balance as of both December 31, 2012 and June 30, 2013. As such, the net investment hedge was considered to be effective, and, as a result, the changes in the fair value were recorded within accumulated other comprehensive income on the Company’s condensed consolidated balance sheets. The Company recognizes net investment derivative instruments as either an asset or a liability on the Company’s condensed consolidated balance sheets at fair value. The notional amounts of the foreign currency forward contracts were $3 billion and $3.5 billion as of December 31, 2012 and June 30, 2013, respectively. The fair value of the foreign currency forward contract assets was $3 million as of December 31, 2012, and was included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. The fair value of the foreign currency forward contracts were a $436 million asset and a $1 million liability as of June 30, 2013, and were included in prepaid expenses and other current assets and capital lease and other long term liabilities, respectively, on the Company’s condensed consolidated balance sheets. Pre-tax net gains of $3 million and $435 million due to changes in the Japanese yen exchange rates were recorded as of December 31, 2012 and June 30, 2013, respectively, and were included in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets.

Cash Flow Hedges. In May 2013, the Company began hedging a portion of its forecasted revenue from Yahoo Japan with forward contracts to reduce the risk that its expected future cash flows from Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. The Company entered into foreign currency forward contracts designated as cash flow hedges of varying maturities through January 31, 2014. For derivatives designated as cash flow hedges, the effective portion of the unrealized gains or losses on these forward contracts is recorded in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets and reclassified into revenue on the condensed consolidated statements of income when the underlying hedged revenue is recognized. If the cash flow hedges were to become ineffective, the ineffective portion would be immediately recorded in other income, net on the Company’s condensed consolidated statements of income. The cash flow hedges were considered to be effective as of June 30, 2013. The notional amounts of the foreign currency forward contracts were $137 million as of June 30, 2013. The fair value of the foreign currency forward contract net asset was less than $1 million as of June 30, 2013, which was included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. A pre-tax gain of less than $1 million was recorded as of June 30, 2013, which was included in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets. For the three and six months ended June 30, 2013, the Company also recorded a loss of less than $1 million, net of tax, for cash flow hedges that settled, which was included in revenue on the condensed consolidated statements of income. The Company did not enter into any derivative financial instruments of this nature as of June 30, 2012. The Company expects all of the forward contracts designated as cash flow hedges to be reclassified to revenue within fiscal year 2013, as it expects to recognize the hedged anticipated revenue related to these contracts by December 31, 2013.

Balance Sheet Hedges. The Company recognizes balance sheet derivative instruments as either assets or liabilities on the Company’s condensed consolidated balance sheets at fair value. Changes in the fair value of these derivatives are recorded in other income, net on the Company’s condensed consolidated statements of income. The notional amounts of the foreign currency forward contracts were $356 million and $316 million as of December 31, 2012 and June 30, 2013, respectively. As of December 31, 2012, the fair value of the foreign currency forward contracts was a $5 million liability and was included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheet. As of June 30, 2013, the fair value of the foreign currency forward contracts was a $1 million net asset and was included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. A loss of $5 million and a loss of less than $1 million were recorded for the three months ended June 30, 2012 and 2013, respectively, and were included in other income, net on the Company’s condensed consolidated statements of income. A loss of $6 million and a gain of $4 million were recorded for the six months ended June 30, 2012 and 2013, respectively, and were included in other income, net on the Company’s condensed consolidated statements of income. The Company paid $2 million in cash for the settlement of some of the foreign currency forward contracts during the six months ended June 30, 2013.

Foreign currency forward contracts activity for the six months ended June 30, 2013 was as follows (in millions):


	Beginning fair value			Settlement		Gain (loss) recorded in other income, net		Gain (loss) recorded in other comprehensive income			Gain (loss) recorded in revenue			Ending fair value
Net investment hedges	$	3		$	—	$	—	$	432	⁽¹⁾	$	—		$	435
Cash flow hedges		—			—		—		—	⁽²⁾		—	⁽³⁾		—
Balance sheet hedges		(5	)		2		4		—			—			1

⁽¹⁾

This amount does not reflect the tax impact of $162 million recorded during the six months ended June 30, 2013. The $273 million after tax impact of the gain recorded under other comprehensive income was included in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets.

⁽²⁾	This amount does not reflect the tax impact of less than $1 million recorded during the six months ended June 30, 2013. The less than $1 million after tax impact of the gain was included in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets.

⁽³⁾	For the three and six months ended June 30, 2013, the Company also recorded a loss of less than $1 million, net of tax, for cash flow hedges that settled, which was included in revenue on the condensed consolidated statements of income.

Note 10 CREDIT FACILITY

On October 19, 2012, the Company entered into a credit agreement (the “Credit Agreement”) with Citibank, N.A., as Administrative Agent, and the other lenders party thereto from time to time. The Credit Agreement provides for a $750 million unsecured revolving credit facility for a term of 364 days, maturing October 18, 2013, and subject to an extension for additional 364-day periods in accordance with the terms and conditions of the Credit Agreement. The Company may elect to increase the revolving credit facility by up to $250 million if existing or new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. The proceeds from borrowings under the Credit Agreement, if any, are expected to be used for general corporate purposes. Borrowings under the Credit Agreement will bear interest at a rate equal to, at the Company’s option, either (a) a customary London interbank offered rate (a “Eurodollar Rate”), or (b) a customary base rate (a “Base Rate”), in each case plus an applicable margin. The applicable margin for borrowings under the Credit Agreement will be based upon the leverage ratio of the Company and range from 1.25 percent to 1.50 percent with respect to Eurodollar Rate borrowings and 0.25 percent to 0.50 percent with respect to Base Rate borrowings.

As of June 30, 2013, the Company was in compliance with the financial covenants in the credit facility and no amounts were outstanding.

Note 11 COMMITMENTS AND CONTINGENCIES

Lease Commitments. The Company leases office space and data centers under operating and capital lease agreements with original lease periods of up to 12 years which expire between 2013 and 2025.

In May 2013, the Company entered into a 12 year operating lease agreement for four floors of the former New York Times building in New York City with a total expected minimum lease commitment of $125 million. The Company has the option to renew the lease for an additional five years. The lease requires monthly payments of approximately $1 million starting in July 2015 through June 2025.

A summary of gross and net lease commitments as of June 30, 2013 was as follows (in millions):


	Gross Operating Lease Commitments		Sublease Income			Net Operating Lease Commitments
Six months ending December 31, 2013	$	71	$	(6	)	$	65
Years ending December 31,
2014		117		(11	)		106
2015		97		(7	)		90
2016		68		(1	)		67
2017		49		—			49
2018		32		—			32
Due after 5 years		108		—			108

Total gross and net lease commitments	$	542	$	(25	)	$	517


	Capital Lease Commitment
Six months ending December 31, 2013	$	8
Years ending December 31,
2014		15
2015		12
2016		9
2017		9
2018		9
Due after 5 years		4

Gross lease commitment	$	66

Less: interest		(17	)

Net lease commitment included in capital lease and other long-term liabilities	$	49

Affiliate Commitments. In connection with contracts to provide advertising services to Affiliates, the Company is obligated to make payments, which represent traffic acquisition costs (“TAC”), to its Affiliates. As of June 30, 2013, these commitments totaled $50 million, of which $42 million will be payable in the remainder of 2013, $6 million will be payable in 2014, $1 million will be payable in 2015, and $1 million will be payable in 2016.

Intellectual Property Rights. The Company is committed to make certain payments under various intellectual property arrangements of up to $30 million through 2023.

Other Commitments. In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, joint ventures and business partners, purchasers of assets or subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to the Company’s conduct of the business and tax matters prior to the sale. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require the Company, among other things, to indemnify them against certain liabilities that 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 may cover certain liabilities arising from its obligation to indemnify its directors and officers, and former directors and officers of acquired companies, in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any liabilities related to such indemnification obligations in the Company’s condensed consolidated financial statements.

As of June 30, 2013, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, the Company is not exposed to any financing, liquidity, market, or credit risk that could arise if the Company had engaged in such relationships. In addition, the Company identified no variable interests currently held in entities for which it is the primary beneficiary.

See Note 16 — “Search Agreement with Microsoft Corporation” for a description of the Company’s Search and Advertising Services and Sales Agreement (the “Search Agreement”) and License Agreement with Microsoft Corporation (“Microsoft”).

Legal Contingencies

Intellectual Property and General Matters. From time to time, third parties assert patent infringement claims against the Company. Currently, the Company is engaged in lawsuits regarding patent issues and has been notified of other potential patent disputes. In addition, from time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, trade secrets, and other intellectual property rights, 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 community features.

Stockholder and Securities Matters. On June 14, 2007, a stockholder derivative action was filed in the United States District Court for the Central District of California by Jill Watkins against members of the board of directors (“Board”) and selected officers. The complaint filed by the

plaintiff alleged breaches of fiduciary duties and corporate waste, similar to the allegations in a former class action relating to stock price declines during the period April 2004 to July 2006, and alleged violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). On July 16, 2009, the plaintiff Watkins voluntarily dismissed the action against all defendants without prejudice. On July 17, 2009, plaintiff Miguel Leyte-Vidal, who had substituted in as plaintiff prior to the dismissal of the federal Watkins action, re-filed a stockholder derivative action in Santa Clara County Superior Court against members of the Board and selected officers. The Santa Clara County Superior Court derivative action purports to assert causes of action on behalf of the Company for violation of specified provisions of the California Corporations Code, for breaches of fiduciary duty regarding financial accounting and insider selling and for unjust enrichment. On September 19, 2011, the Court sustained Yahoo!’s demurrer to plaintiff’s third amended complaint without leave to amend. Plaintiff has appealed.

Since May 31, 2011, several related stockholder derivative suits were filed in the Santa Clara County Superior Court (“California Derivative Litigation”) and the United States District Court for the Northern District of California (“Federal Derivative Litigation”) purportedly on behalf of the Company against certain officers and directors of the Company and third parties. The California Derivative Litigation was filed by plaintiffs Cinotto, Lassoff, Zucker, and Koo, and consolidated under the caption In re Yahoo! Inc. Derivative Shareholder Litigation on June 24, 2011 and September 12, 2011. The Federal Derivative Litigation was filed by plaintiffs Salzman, Tawila, and Iron Workers Mid-South Pension Fund and consolidated under the caption In re Yahoo! Inc. Shareholder Derivative Litigation on October 3, 2011. The plaintiffs allege breaches of fiduciary duties, corporate waste, mismanagement, abuse of control, unjust enrichment, misappropriation of corporate assets, or contribution and seek damages, equitable relief, disgorgement and corporate governance changes in connection with Alibaba Group’s restructuring of its subsidiary Alipay.com Co., Ltd. (“Alipay”) and related disclosures. On June 7, 2012, the courts approved stipulations staying the California Derivative Litigation pending resolution of the Federal Derivative Litigation, and deferring the Federal Derivative Litigation pending a ruling on the motion to dismiss filed by the defendants in the related stockholder class actions, which are discussed below.

Since June 6, 2011, two purported stockholder class actions were filed in the United States District Court for the Northern District of California against the Company and certain officers and directors of the Company by plaintiffs Bonato and the Twin Cities Pipe Trades Pension Trust. In October 2011, the District Court consolidated the two actions under the caption In re Yahoo! Inc. Securities Litigation and appointed the Pension Trust Fund for Operating Engineers as lead plaintiff. In a consolidated amended complaint filed December 15, 2011, the lead plaintiff purports to represent a class of investors who purchased the Company’s common stock between April 19, 2011 and July 29, 2011, and alleges that during that class period, defendants issued statements that were materially false or misleading because they did not disclose information relating to Alibaba Group’s restructuring of Alipay. The complaint purports to assert claims for relief for violation of Section 10(b) and 20(a) of the Exchange Act and for violation of Rule 10b-5 thereunder, and seeks unspecified damages, injunctive and equitable relief, fees, and costs. On August 10, 2012, the court granted defendants’ motion to dismiss the consolidated amended complaint. Plaintiffs have appealed.

On July 30, 2013, a stockholder derivative action captioned Zucker v. Loeb, et al. was filed in the Supreme Court of New York for the County of New York against current and former members of the Board, Third Point LLC, and entities related to Third Point LLC. The complaint filed by the plaintiff asserts claims for alleged breach of fiduciary duty, waste, and unjust enrichment in connection with the Company’s repurchase of 40 million shares of Company stock beneficially owned by Third Point LLC. The complaint seeks a judgment declaring that the defendants breached their fiduciary duties, an award of restitution, and corporate governance changes.

Mexico Matter. On November 16, 2011, plaintiffs Worldwide Directories, S.A. de C.V. (“WWD”), and Ideas Interactivas, S.A. de C.V. (“Ideas”) filed an action in the 49th Civil Court of Mexico against the Company, Yahoo! de Mexico, S.A. de C.V. (“Yahoo! Mexico”), Yahoo International Subsidiary 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 damages of approximately $2.75 billion. On December 7, 2011, Yahoo! Mexico filed a counterclaim against WWD for payments of approximately $2.6 million owed to Yahoo! Mexico for services rendered. On April 10, 2012, plaintiffs withdrew their claim filed against Yahoo International Subsidiary Holdings, Inc. and Yahoo Hispanic Americas LLC.

On November 28, 2012, the 49th Civil Court of Mexico entered a non-final judgment against the Company and Yahoo! Mexico in the amount of USD $2.75 billion and a non-final judgment in favor of Yahoo! Mexico on its counterclaim against WWD in the amount of $2.6 million. The judgment against the Company and Yahoo! Mexico purported to leave open for determination in future proceedings certain other alleged damages that were not quantified in the judgment. The judgment was issued by a law clerk to the trial court judge who presided over the entire case during the trial court proceedings but stepped down from his position shortly before the judgment was entered.

On December 12, 2012 and December 13, 2012, respectively, Yahoo! Mexico and the Company appealed the judgment to a three-magistrate panel of the Superior Court of Justice for the Federal District (the “Superior Court”). On May 15, 2013, the Superior Court reversed the judgment, overturned all monetary awards against the Company and reduced the monetary award against Yahoo! Mexico to $172,500. The Superior Court affirmed the award of $2.6 million in favor of Yahoo! Mexico on its counterclaim.

Plaintiffs have appealed the Superior Court’s decision to the Mexican Federal Civil Collegiate Court for the First Circuit (“Civil Collegiate Court”). The Company has appealed the Superior Court’s decision not to award it statutory costs in the underlying proceeding. Yahoo! Mexico has appealed the Superior Court’s award of $172,500, the Superior Court’s decision not to award it additional moneys beyond the $2.6 million award on its counterclaims, and the Superior Court’s decision not to award it statutory costs. These appeals are all pending before the Civil Collegiate Court, where review is limited to whether the Superior Court’s decision is unconstitutional, unlawful, or both.

The Company believes the plaintiffs’ claims are without legal or factual merit. First, the plaintiffs’ claims are based on agreements that were either terminated by agreement with releases or had expired or terminated in accordance with their terms, a non-binding letter of intent pursuant to which no definitive agreements were ever entered into by the parties, and correspondence that did not constitute agreements. Second, the loss of profits of the type claimed by plaintiffs are not awardable under Mexico law because they were not a direct and immediate consequence of a breach of contract. Of the $2.75 billion in total damages alleged by plaintiffs, more than $2.4 billion were for loss of profits. Third, the plaintiffs’ alleged damages and loss of profits were further precluded by the agreements at issue through, among other things, contractual and legal limitations of liability. Fourth, the plaintiffs’ pleadings in the complaint, as well as documentary evidence filed by the plaintiffs in support of their allegations, were generally deficient to support or establish plaintiffs’ claims. Fifth, the decision failed to consider substantially all of the defenses asserted by the Company and Yahoo! Mexico. Finally, the Company believes that the law clerk who entered the judgment lacked the requisite authority to issue the judgment.

The Company has not recorded an accrual for the judgment, which was reversed, as explained above. The Company cannot assure the ultimate outcome of the pending or further appeals.

The Company has determined, based on current knowledge, that the amount or range of reasonably possible losses, including reasonably possible losses in excess of amounts already accrued, is not reasonably estimable with respect to certain matters described above. The Company has also determined, based on current knowledge, that the aggregate amount or range of losses that are estimable with respect to the Company’s legal proceedings, including the matters described above other than the Mexico matter, would not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Amounts accrued as of December 31, 2012 and June 30, 2013 were not material. The ultimate outcome of legal proceedings involves judgments, estimates and inherent uncertainties, and cannot be predicted with certainty. In the event of a determination adverse to Yahoo!, its subsidiaries, directors, or officers in these matters, the Company may incur substantial monetary liability, and be required to change its business practices. Either of these events could have a material adverse effect 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 12 STOCKHOLDERS’ EQUITY AND EMPLOYEE BENEFITS

Employee Stock Purchase Plan. As of June 30, 2013, there was $9 million of unamortized stock-based compensation expense related to the Company’s Employee Stock Purchase Plan, which will be recognized over a weighted average period of 0.8 years.

Stock Options. The Company’s 1995 Stock Plan, the Directors’ Plan, and other stock-based award plans assumed through acquisitions are collectively referred to as the “Plans.” Stock option activity under the Company’s Plans for the six months ended June 30, 2013 is summarized as follows (in thousands, except per share amounts):


	Shares			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2012		38,092		$	21.42
Options granted		30		$	24.44
Options assumed		1,035		$	7.73
Options exercised^(*)		(5,073	)	$	15.79
Options expired		(2,647	)	$	30.41
Options cancelled/forfeited		(550	)	$	15.15

Outstanding at June 30, 2013		30,887		$	21.24

^(*)	The Company issued new shares to satisfy stock option exercises.

As of June 30, 2013, there was $35 million of unamortized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 1.5 years.

The fair value of option grants is determined using the Black-Scholes option pricing model with the following weighted average assumptions:


	Stock Options						Purchase Plan ⁽¹⁾
	Three Months Ended						Three Months Ended
	June 30, 2012			June 30, 2013			June 30, 2012			June 30, 2013
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate⁽²⁾		0.8	%		0.5	%		1.1	%		0.1	%
Expected volatility		32.3	%		31.5	%		34.0	%		29.4	%
Expected life (in years)⁽²⁾		4.00			3.25			1.36			0.24

	Stock Options						Purchase Plan ⁽¹⁾
	Six Months Ended						Six Months Ended
	June 30, 2012			June 30, 2013			June 30, 2012			June 30, 2013
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate⁽²⁾		0.7	%		0.5	%		1.2	%		0.1	%
Expected volatility		32.3	%		31.2	%		34.1	%		29.4	%
Expected life (in years)⁽²⁾		4.04			3.63			1.25			0.24

⁽¹⁾

Assumptions for the Employee Stock Purchase Plan relate to the annual average of the enrollment periods. During the year ended December 31, 2012, enrollment was permitted in May and November of each year. Beginning in 2013, enrollment is permitted in February, May, August, and November of each year.

⁽²⁾	Beginning in November 2012, the Employee Stock Purchase Plan was modified to consist of three-month offering periods.

Restricted stock unit activity for the six months ended June 30, 2013 is summarized as follows (in thousands, except per share amounts):


	Shares			Weighted Average Grant Date Fair Value Per Share
Awarded and unvested at December 31, 2012^(*)		33,801		$	17.63
Granted^(*)		20,320		$	21.71
Assumed		2,364		$	26.24
Vested		(6,480	)	$	15.32
Forfeited		(3,776	)	$	16.69

Awarded and unvested at June 30, 2013^(*)		46,229		$	20.26

^(*)	Includes the maximum number of shares issuable under the Company’s performance-based executive incentive restricted stock unit awards.

As of June 30, 2013, there was $469 million of unamortized stock-based compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 2.8 years.

During the six months ended June 30, 2012 and 2013, 7.2 million shares and 6.5 million shares, respectively, that were subject to previously granted restricted stock units vested. These vested restricted stock units were net share settled. During the six months ended June 30, 2012 and 2013, the Company withheld 2.5 million shares and 2.4 million shares, respectively, based upon the Company’s closing stock price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. The Company then remitted cash to the appropriate taxing authorities.

Total payments for the employees’ tax obligations to the relevant taxing authorities were $38 million and $51 million, respectively, for the six months ended June 30, 2012 and 2013 and are reflected as a financing activity within the condensed consolidated statements of cash flows. The payments were used for tax withholdings related to the net share settlements of restricted stock units. The payments had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued on the vesting date and were recorded as a reduction of additional paid-in capital.

Performance-Based Executive Incentive Equity Awards. The financial performance stock options awarded by the Company in November 2012 include multiple performance periods. In January 2013, the Compensation Committee established performance goals under these stock options for the first performance period (the six months ended June 30, 2013) and the second performance period (the full year ending December 31, 2013). These options are held by Ms. Mayer, Mr. de Castro and Mr. Goldman (the first

performance period for Mr. Goldman is the full year ending December 31, 2013). The number of stock options that ultimately vest for each performance period will range from 0 percent to 100 percent of the target amount for such period stated in each executive’s award agreement based on the Company’s performance. The financial performance metrics (and their weightings) under the performance options are revenue ex-TAC (50 percent), operating income (30 percent) and free cash flow (20 percent). The financial performance goals for each metric are established at the beginning of each performance period and, accordingly, the portion (or “tranche”) of the award subject to each goal is treated as a separate grant for accounting purposes. The grant date fair values of the first and second tranches of the November 2012 financial performance stock options were $12 million and $14 million, respectively, and are being recognized over six and twelve month service periods, respectively. The Company began recording stock-based compensation expense for these tranches in January 2013, when the financial performance goals were established and approved.

In February 2013, the Compensation Committee approved additional long-term performance-based incentive equity awards to Ms. Mayer and other senior officers. These restricted stock units generally will be eligible to vest in equal annual installments 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 the vesting date. The number of restricted stock units that ultimately vest each year will range from 0 percent to 200 percent of the annual target amount stated in each executive’s award agreement based on the Company’s performance. The annual financial performance metrics and goals are established at the beginning of each fiscal year and, accordingly, the tranche of the award subject to each annual goal is treated as a separate annual grant for accounting purposes. In February 2013, financial performance metrics and goals were established for the first performance period (the fiscal year ending December 31, 2013). The financial performance metrics (and their weightings) for fiscal year 2013 are revenue ex-TAC (60 percent), operating income (20 percent) and free cash flow (20 percent). The grant date fair value of the first tranche of the February 2013 annual financial performance restricted stock unit grants was $9 million and is being recognized over a one-year service period.

Stock Repurchases. In May 2012, the Board authorized a stock repurchase program allowing the Company to repurchase up to $5 billion of its outstanding shares of common stock from time to time. The May 2012 repurchase program, according to its terms, will expire in June 2015 unless revoked earlier by the Board. The aggregate amount available under the May 2012 repurchase program was approximately $2 billion at June 30, 2013. Repurchases under the repurchase programs may take place in the open market or in privately negotiated transactions, including structured and derivative transactions such as accelerated share repurchase transactions, and may be made under a Rule 10b5-1 plan. During the six months ended June 30, 2013, the Company repurchased approximately 63 million shares of its common stock under this stock repurchase program at an average price of $22.51 per share for a total of $1.4 billion.

See Note 17 – “Subsequent Events” for information regarding stock repurchases that occurred after June 30, 2013.

Note 13 RESTRUCTURING CHARGES (REVERSALS), NET

Restructuring charges (reversals), net was comprised of the following (in thousands):


	Three Months Ended June 30, 2012										Six Months Ended June 30, 2012
	Restructuring Plans Prior to 2012		Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total			Restructuring Plans Prior to 2012		Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total
Employee severance pay and related costs	$	670	$	91,066		$	—	$	91,736		$	3,661	$	91,066		$	—	$	94,727
Non-cancelable lease, contract terminations, and other charges		1,530		617			—		2,147			4,256		617			—		4,873
Other non-cash charges, net		—		38,638			—		38,638			—		38,638			—		38,638

Sub-total before reversal of stock-based compensation expense		2,200		130,321			—		132,521			7,917		130,321			—		138,238
Reversal of stock-based compensation expense for forfeitures		—		(3,429	)		—		(3,429	)		—		(3,429	)		—		(3,429	)

Restructuring charges, net	$	2,200	$	126,892		$	—	$	129,092		$	7,917	$	126,892		$	—	$	134,809


	Three Months Ended June 30, 2013											Six Months Ended June 30, 2013
	Restructuring Plans Prior to 2012			Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total			Restructuring Plans Prior to 2012			Q2’12 Restructuring Plan			Q4’12 Korea Business Closure			Total
Employee severance pay and related costs	$	(436	)	$	(2,712	)	$	—	$	(3,148	)	$	(439	)	$	(12,977	)	$	(103	)	$	(13,519	)
Non-cancelable lease, contract terminations, and other charges		6,624			33			69		6,726			9,435			98			(36	)		9,497
Other non-cash charges, net		—			—			—		—			—			—			538			538

Restructuring charges (reversals), net	$	6,188		$	(2,679	)	$	69	$	3,578		$	8,996		$	(12,879	)	$	399		$	(3,484	)

Although the Company does not allocate restructuring charges to its segments, the amounts of the restructuring charges relating to each segment are presented below.

Restructuring Plans Prior to 2012. Prior to 2012, the Company implemented workforce reductions, a strategic realignment, and consolidation of certain real estate facilities and data centers to reduce its cost structure, align resources with its product strategy, and improve efficiency. During the three and six months ended June 30, 2012, the Company incurred total pre-tax cash charges of $2 million and $8 million, respectively, in severance, facility, and other related costs under these restructuring plans, the majority of which related to the Americas segment. During the three and six months ended June 30, 2013, the Company incurred total pre-tax cash charges of $6 million and $9 million, respectively, in severance, facility, and other related costs under these restructuring plans. Of the $6 million recorded for the three months ended June 30, 2013, $2 million related to the Americas segment and $4 million related to the EMEA segment. Of the $9 million recorded for the six months ended June 30, 2013, $5 million related to the Americas segment and $4 million related to the EMEA segment.

Q2’12 Restructuring Plan. During the second quarter of 2012, the Company began implementing the Q2’12 Restructuring Plan to reduce its worldwide workforce by approximately 2,000 employees and to consolidate certain real estate and data center facilities. During the three months ended June 30, 2012, the Company incurred total pre-tax cash charges of $91 million in severance related costs and $39 million in non-cash facility and other asset impairment charges under this restructuring plan. The total pre-tax charges were offset by a $3 million credit related to non-cash stock-based compensation expense reversals for unvested stock awards that were forfeited. Of the $127 million in restructuring charges, net, recorded in the three months ended June 30, 2012, $86 million related to the Americas segment, $35 million related to the EMEA segment, and $6 million related to the Asia Pacific segment. During the three months ended June 30, 2013, the Company recorded a net credit of $3 million for severance-related cost reversals due to changes to original estimates and redeployments and voluntary resignations of employees prior to their planned severance dates. During the six months ended June 30, 2013, the Company recorded $6 million in severance and facility related costs which were offset by a credit of $19 million for severance-related cost reversals due to changes to original estimates and redeployments and voluntary resignations of employees prior to their planned severance dates. Of the $3 million credit in restructuring charges, net, recorded in the three months ended June 30, 2013, $2 million related to the Americas segment and $1 million related to the EMEA segment. Of the $13 million credit in restructuring charges, net, recorded in the six months ended June 30, 2013, $8 million related to the Americas segment and $5 million related to the EMEA segment.

Q4’12 Korea Business Closure. During the fourth quarter of 2012, the Company decided to close its Korea business by the end of 2012 to streamline its operations and focus its resources. During both the three and six months ended June 30, 2013, the Company recorded net pre-tax charges of less than $1 million in severance, facility and contract termination costs related to the Asia Pacific segment.

Restructuring Accruals. The $37 million restructuring liability as of June 30, 2013 consisted of $6 million for employee severance pay expenses, which the Company expects to pay out by the end of the fourth quarter of 2013, and $31 million relating to non-cancelable lease and contract termination costs, which the Company expects to pay over the terms of the related obligations which extend to the fourth quarter of 2021.

The Company’s restructuring accrual activity for the six months ended June 30, 2013 is summarized as follows (in thousands):


	Restructuring Plans Prior to 2012			Q2’12 Restructuring Plan			Q4’12 Korea Business Closure			Total
Balance as of January 1, 2013	$	27,716		$	35,049		$	10,102		$	72,867

Employee severance pay and related costs		28			6,247			443			6,718
Non-cancelable lease, contract termination, and other charges		9,869			98			1,235			11,202
Other non-cash charges		—			—			538			538
Changes in estimates and reversals of previous charges		(901	)		(19,224	)		(1,817	)		(21,942	)

Restructuring charges (reversals), net for the six months ended June 30, 2013	$	8,996		$	(12,879	)	$	399		$	(3,484	)
Cash paid		(8,630	)		(14,243	)		(8,332	)		(31,205	)
Other non-cash charges		—			—			(538	)		(538	)
Foreign currency		(94	)		(381	)		(171	)		(646	)

Balance as of June 30, 2013	$	27,988		$	7,546		$	1,460		$	36,994

Restructuring accruals by segment consisted of the following (in thousands):


	December 31, 2012		June 30, 2013
Americas	$	42,689	$	22,854
EMEA		18,144		12,026
Asia Pacific		12,034		2,114

Total restructuring accruals	$	72,867	$	36,994

Note 14 INCOME TAXES

The Company’s effective tax rate is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. Historically, the Company’s provision for income taxes has differed from the tax computed at the U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, non-deductible stock-based compensation expense and adjustments to unrecognized tax benefits.

The effective tax rate reported for the three months ended June 30, 2013 was 31 percent compared to 35 percent for the same period in 2012. The effective tax rate for the three months ended June 30, 2013 was lower than in 2012 primarily due to an $11 million tax benefit recorded during the quarter ended June 30, 2013 relating to the resolution of certain tax matters associated with a one-time foreign earnings distribution made during the quarter ended September 30, 2012. The effective tax rate reported for the six months ended June 30, 2013 was 22 percent compared to 34 percent for the same period in 2012. The rates in both periods were lower than the U.S. federal statutory rate primarily due to the reductions of tax reserves for tax audits that were favorably settled. The reduction of tax reserves for the six months ended June 30, 2013 was related to various tax audits worldwide, settled and ongoing, and resulted in a net tax benefit of approximately $30 million.

The conclusion of the 2005 and 2006 IRS tax audit, discussed below, settled various international transfer pricing matters and had the effect of increasing the foreign tax credits available to offset the tax from the distribution of foreign earnings reported during the three months ended September 30, 2012. The increased foreign tax credits and the tax benefit relating to the resolution of certain tax matters associated with a one-time foreign earnings distribution made during the quarter ended September 30, 2012 mentioned above, resulted in a tax benefit during the six months ended June 30, 2013 of approximately $22 million.

The federal research and development credit expired on December 31, 2011. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law. Under this act, the federal research and development credit was retroactively extended for amounts paid or incurred after December 31, 2011 and before January 1, 2014. This change resulted in a 2012 tax benefit of approximately $9 million, which was recognized during the six months ended June 30, 2013.

In connection with a review of the Company’s cash position and anticipated cash needs for investment in the Company’s core business, including potential acquisitions and capital expenditures, and stock repurchases, the Company made a one-time repatriation of cash from certain of its consolidated foreign subsidiaries in 2012. The remaining undistributed foreign earnings of approximately $2 billion principally related to Yahoo Japan, and future earnings, will continue to be indefinitely reinvested going forward.

During the six months ended June 30, 2013, the Company settled the income tax examination for the 2005 and 2006 returns with the IRS Appeals Division. That settlement resulted in a reduction of tax reserves. The income tax examination for the 2007 and 2008 returns is currently under protest with the IRS Appeals Division relating to certain proposed adjustments to the Company’s intercompany transfer pricing methodology. An initial meeting with the IRS Appeals Division is expected to be held in 2013 to address those matters. The Company’s 2009 and 2010 returns are currently under IRS examination.

As of June 30, 2013, the Company’s 2005 through 2008 tax returns are also under various stages of audit by the California Franchise Tax Board. While the California Franchise Tax Board has not reached any conclusions on the 2007 and 2008 returns, the Company has protested the proposed California Franchise Tax Board’s adjustments to the 2005 and 2006 returns. The Company is also in various stages of examination and appeal in connection with its taxes in foreign jurisdictions, which generally span tax years 2005 through 2011.

The Company’s gross amount of unrecognized tax benefits as of June 30, 2013 was $715 million, of which $633 million is recorded on the condensed consolidated balance sheets. The gross unrecognized tax benefits as of June 30, 2013 decreased by $12 million from the recorded balance as of December 31, 2012. While it is difficult to determine when the examinations will be settled or their final outcomes, certain audits in various jurisdictions related to multinational income tax issues are expected to be resolved in the foreseeable future. As a result, it is reasonably possible that the unrecognized tax benefits could be reduced by up to approximately $35 million in the next twelve months. The Company believes that it has adequately provided for any reasonably foreseeable adjustment and that any settlement will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

The Company may have additional tax liabilities in China related to the sale to Alibaba Group of 523 million Shares of Alibaba Group that took place during the year ended December 31, 2012. Any taxes assessed and paid in China are expected to be ultimately offset and recovered in the U.S.

During the year ended December 31, 2012, tax authorities from the Brazilian State of Sao Paulo assessed certain indirect taxes against the Company’s Brazilian subsidiary, Yahoo! do Brasil Internet Ltda., related to online advertising services. The assessment totaling approximately $85 million is for calendar years 2008 and 2009. The Company currently believes the assessment is without merit. The Company does not believe that it is probable the assessment will be sustained upon appeal and, accordingly, has not recorded an accrual for the assessment.

Note 15 SEGMENTS

The Company continues to manage its business geographically. The primary areas of measurement and decision-making are currently Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. Management relies 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’s segments. The Company is currently evaluating how it will report the Tumblr acquisition for segment reporting purposes.

The following tables present summarized information by segment (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Revenue by segment:
Americas	$	821,751	$	828,537	$	1,657,784	$	1,670,732
EMEA		128,099		97,387		262,061		192,211
Asia Pacific		267,944		209,320		519,182		412,669

Total Revenue	$	1,217,794	$	1,135,244	$	2,439,027	$	2,275,612

TAC by segment:
Americas	$	45,910	$	37,120	$	88,865	$	74,642
EMEA		34,187		11,372		79,849		22,908
Asia Pacific		56,928		15,824		112,402		32,834

Total TAC	$	137,025	$	64,316	$	281,116	$	130,384

Revenue ex-TAC by segment:
Americas	$	775,841	$	791,417	$	1,568,919	$	1,596,090
EMEA		93,912		86,015		182,212		169,303
Asia Pacific		211,016		193,496		406,780		379,835

Total Revenue ex-TAC	$	1,080,769	$	1,070,928	$	2,157,911	$	2,145,228

Direct costs by segment⁽¹⁾:
Americas		181,510		172,268		360,735		342,392
EMEA		41,277		41,416		81,498		79,844
Asia Pacific		56,248		49,667		107,739		104,681
Global operating costs⁽²⁾⁽³⁾		410,519		438,395		832,417		863,524
Depreciation and amortization		157,739		160,489		310,987		322,581
Stock-based compensation expense		49,571		68,136		105,537		112,741
Restructuring charges (reversals), net		129,092		3,578		134,809		(3,484	)

Income from operations	$	54,813	$	136,979	$	224,189	$	322,949

⁽¹⁾	Direct costs for each segment include cost of revenue—other as well as other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses.

⁽²⁾	Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any segment.

⁽³⁾	The net cost reimbursements from Microsoft pursuant to the Search Agreement are primarily included in global operating costs.


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Capital expenditures, net:
Americas	$	96,443	$	75,061	$	179,327	$	140,477
EMEA		4,078		2,757		13,361		5,664
Asia Pacific		5,610		4,258		23,234		5,516

Total capital expenditures, net	$	106,131	$	82,076	$	215,922	$	151,657


	December 31, 2012		June 30, 2013
Property and equipment, net:
Americas:
U.S	$	1,483,225	$	1,419,309
Other		1,869		1,541

Total Americas	$	1,485,094	$	1,420,850

EMEA		59,416		49,370
Asia Pacific		141,335		109,602

Total property and equipment, net	$	1,685,845	$	1,579,822

See Note 13 —“Restructuring Charges (Reversals), Net” for additional information regarding segments.

Enterprise Wide Disclosures:

The following table presents revenue for groups of similar services (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Display	$	534,972	$	471,742	$	1,046,189	$	926,813
Search		460,969		418,202		931,366		842,889
Other		221,853		245,300		461,472		505,910

Total revenue	$	1,217,794	$	1,135,244	$	2,439,027	$	2,275,612


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Revenue:
U.S.	$	779,321	$	784,726	$	1,578,971	$	1,589,479
International		438,473		350,518		860,056		686,133

Total revenue	$	1,217,794	$	1,135,244	$	2,439,027	$	2,275,612

Revenue is attributed to individual countries according to the online property that generated the revenue. No single foreign country was material to revenue for the three or six months ended June 30, 2012 and 2013.

Note 16 SEARCH AGREEMENT WITH MICROSOFT CORPORATION

On December 4, 2009, the Company entered into the Search Agreement with Microsoft, which provides for Microsoft to be the exclusive algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites. The Company also entered into a License Agreement with Microsoft. Under the License Agreement, Microsoft acquired an exclusive 10-year license to the Company’s core search technology and will have the ability to integrate this technology into its existing Web search platforms. On February 18, 2010, the Company received regulatory clearance from both the U.S. Department of Justice and the European Commission and on February 23, 2010 the Company commenced implementation of the Search Agreement on a market-by-market basis. Under the Search Agreement, the Company will be the exclusive worldwide relationship sales force for both companies’ premium search advertisers, which include advertisers meeting certain spending or other criteria, advertising agencies that specialize in or offer search engine marketing services and their clients, and resellers and their clients seeking assistance with their paid search accounts. The term of the Search Agreement is 10 years from 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, the Company is entitled to receive 88 percent of the revenue generated from Microsoft’s services on Yahoo! Properties (the “Revenue Share Rate”) and the Company is also entitled to receive 88 percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue. For new Affiliates during the term of the Search Agreement, and for all Affiliates after the first five years of such term, the Company will receive 88 percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue and certain Microsoft costs are deducted. On February 23, 2015 (the fifth anniversary of the date that implementation of the Search Agreement commenced), Microsoft will have the option to terminate the Company’s sales exclusivity for premium search

advertisers. If Microsoft exercises this option, the Revenue Share Rate will increase to 93 percent for the remainder of the term of the Search Agreement, unless the Company exercises its option to retain the Company’s sales exclusivity, in which case the Revenue Share Rate would be reduced to 83 percent for the remainder of the term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90 percent for the remainder of the term of the Search Agreement. In the transitioned markets, the Company reports as revenue the 88 percent revenue share as the Company is not the primary obligor in the arrangement with the advertisers and publishers. The underlying search advertising services are provided by Microsoft. The Company’s uncollected 88 percent share in connection with the Search Agreement, which is included in accounts receivable, net, was $258 million and $262 million as of December 31, 2012 and June 30, 2013, respectively.

Under the Search Agreement, for each market, Microsoft generally guarantees Yahoo!’s revenue per search (“RPS Guarantee”) on Yahoo! Properties only for 18 months after the transition of paid search services to Microsoft’s platform in that market based on the difference in revenue per search between the pre-transition and post-transition periods and certain other factors. The Company records the RPS Guarantee as search revenue in the quarter the amount becomes fixed, which is typically the quarter in which the associated shortfall in revenue per search occurred. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013 and in the second quarter of 2013, Microsoft extended the RPS Guarantee in the U.S. through March 2014. In June 2013, Microsoft and Yahoo! agreed upon the RPS Guarantee payment amounts to be paid to the Company for the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013. The Company also agreed to fixed quarterly payments in lieu of the RPS Guarantee in the U.S. for the quarters ending September 30, 2013, December 31, 2013 and March 31, 2014. In addition, the Company agreed to waive its right to receive any future RPS Guarantee payments in all other markets except Taiwan and Hong Kong.

The Company completed the transition of its algorithmic and paid search platforms to the Microsoft platform in the U.S. and Canada in the fourth quarter of 2010. In 2011, the Company completed the transition of algorithmic search in all other markets and the transition of paid search in India. In 2012, the Company completed the transition of paid search in most of the EMEA markets as well as six markets in Latin America. In the second quarter of 2013, the Company completed the transition of paid search in Brazil. The Company is continuing to work with Microsoft on transitioning paid search in the remaining markets. The market-by-market transition of the Company’s paid search platform to Microsoft’s platform and the migration of paid search advertisers and publishers to Microsoft’s platform are expected to continue through 2013, and possibly into 2014.

From February 23, 2010 until the applicable services are fully transitioned to Microsoft in all markets, Microsoft will also reimburse the Company for the costs of operating algorithmic and paid search services subject to specified exclusions and limitations. The Company’s results reflect search operating cost reimbursements from Microsoft under the Search Agreement of $17 million and $34 million for the three and six months ended June 30, 2012, respectively, and $18 million and $31 million for the three and six months ended June 30, 2013, respectively. Search operating cost reimbursements began during the quarter ended March 31, 2010 and will, subject to specified exclusions and limitations, continue until the Company has fully transitioned to Microsoft’s platform.

Reimbursement receivables are recorded as the reimbursable costs are incurred and are applied against the operating expense categories in which the costs were incurred. Of the total amounts incurred during the year ended December 31, 2012 and the six months ended June 30, 2013, the total reimbursements not yet received from Microsoft of $5 million and $4 million, respectively, were classified as part of prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets as of December 31, 2012 and June 30, 2013, respectively.

Note 17 SUBSEQUENT EVENTS

Stock Repurchase Transactions. From July 1, 2013 through August 8, 2013, the Company repurchased approximately 51 million shares of its common stock at an average price of $28.66 per share, for a total of $1.5 billion.

These repurchases included the Company’s repurchase of 40 million shares of its 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, at $29.11 per share, which equaled the closing price of the Company’s common stock on July 19, 2013. The total purchase price for these shares was $1.164 billion. The repurchase transaction was funded primarily with cash as well as borrowings of $150 million under the Company’s unsecured revolving credit facility.

Acquisitions. From July 1, 2013 through August 8, 2013, the Company acquired seven companies, which will be accounted for as business combinations, for total aggregate consideration of approximately $162 million.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In addition to current and historical information, this Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” or “continue” or the negative of such terms or other comparable terminology. This Report includes, among others, forward-looking statements regarding our:

•

expectations about revenue, including display, search, and other revenue;

•

expectations about growth in users;

•

expectations about changes in our earnings in equity interests;

•

expectations about operating expenses;

•

anticipated capital expenditures;

•

expectations about our share repurchase activity;

•

expectations about the implementation and the financial and operational impacts of our Search Agreement with Microsoft;

•

impact of recent acquisitions on our business and evaluation of, and expectations for, possible acquisitions of, or investments in, businesses, products, intangible assets, and technologies;

•

projections and estimates with respect to our restructuring activities and changes to our organizational structure;

•

expectations about the impact of the closure of our Korea business;

•

expectations about the amount of unrecognized tax benefits, the outcome of tax assessment appeals, the adequacy of our existing tax reserves, and future tax expenditures, and tax rates;

•

expectations about positive cash flow generation and existing cash, cash equivalents, and investments being sufficient to meet normal operating requirements; and

•

expectations regarding the outcome of legal proceedings in which we are involved, including the outcome of our efforts to sustain the reversal of the judgment entered against us and one of our subsidiaries in a proceeding in Mexico.

These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part II, Item 1A. “Risk Factors” of this Report. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

Overview

Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!,” the “Company,” “we,” or “us”), is focused on making the world’s daily habits inspiring and entertaining. By creating highly personalized experiences for our users, we keep people connected to what matters most to them, across devices and around the world. In turn, we create value for advertisers by connecting them with the audiences that build their businesses. Advertisers can build their businesses through advertising to targeted audiences on our online properties and services (“Yahoo! Properties”), or through our distribution network of third-party entities (“Affiliates”) who integrate our advertising offerings into their Websites or other offerings (those Websites and other offerings, “Affiliate sites”).

Our offerings to users on Yahoo! Properties currently fall into four categories: Yahoo.com; Communications; User-Generated Content; and Mobile & Emerging Products. We manage and measure our business geographically, principally in the Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific.

In the following Management’s Discussion and Analysis, we provide information regarding the following areas:

•

Key Financial Metrics;

•

Non-GAAP Financial Measures;

•

Significant Transactions;

•

Results of Operations;

•

Liquidity and Capital Resources; and

•

Critical Accounting Policies and Estimates.

Key Financial Metrics

The key financial metrics we use are as follows: revenue; revenue less traffic acquisition costs (“TAC”), or revenue ex-TAC; income from operations; adjusted EBITDA; net income attributable to Yahoo! Inc.; net cash provided by 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 to facilitate period-to-period comparisons. See “Non-GAAP Financial Measures” below for a description of each of these non-GAAP financial measures.


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
	(dollars in thousands)

Revenue	$	1,217,794	$	1,135,244	$	2,439,027	$	2,275,612
Revenue ex-TAC	$	1,080,769	$	1,070,928	$	2,157,911	$	2,145,228
Income from operations^(*)	$	54,813	$	136,979	$	224,189	$	322,949
Adjusted EBITDA	$	397,715	$	369,182	$	782,022	$	754,787
Net income attributable to Yahoo! Inc.	$	226,631	$	331,150	$	512,974	$	721,435
Net cash provided by operating activities	$	274,560	$	330,828	$	572,013	$	549,510
Free cash flow	$	93,390	$	131,400	$	289,213	$	281,308

^(*) Includes:

Stock-based compensation expense	$	49,571	$	68,136	$	105,537	$	112,741
Restructuring charges (reversals), net	$	129,092	$	3,578	$	134,809	$	(3,484	)

Revenue ex-TAC (a Non-GAAP Financial Measure)


	Three Months Ended June 30,				Percent Change			Six Months Ended June 30,				Percent Change
	2012		2013					2012		2013
	(dollars in thousands)

Revenue	$	1,217,794	$	1,135,244		(7	)%	$	2,439,027	$	2,275,612		(7	)%
Less: TAC		137,025		64,316		(53	)%		281,116		130,384		(54	)%

Revenue ex-TAC	$	1,080,769	$	1,070,928		(1	)%	$	2,157,911	$	2,145,228		(1	)%

For the three and six months ended June 30, 2013, revenue ex-TAC decreased 1 percent compared to the same periods of 2012, due to a decline in display revenue ex-TAC partially offset by an increase in search and other revenue ex-TAC.

Adjusted EBITDA (a Non-GAAP Financial Measure)


	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2012			2013					2012			2013
	(dollars in thousands)

Net income attributable to Yahoo! Inc.	$	226,631		$	331,150			46 %	$	512,974		$	721,435			41 %
Depreciation and amortization		157,739			160,489			2 %		310,987			322,581			4 %
Stock-based compensation expense		49,571			68,136			37 %		105,537			112,741			7 %
Restructuring charges (reversals), net		129,092			3,578			(97)%		134,809			(3,484	)		(103)%
Other income, net		(20,175	)		(23,606	)		17 %		(22,453	)		(40,678	)		81 %
Provision for income taxes		26,523			50,267			90 %		82,942			80,003			(4)%
Earnings in equity interests		(179,991	)		(224,690	)		25 %		(352,234	)		(442,278	)		26 %
Net income attributable to noncontrolling interests		1,825			3,858			111 %		2,960			4,467			51 %
Deal costs related to the sale of Alibaba Group shares		6,500			—			(100)%		6,500			—			(100)%

Adjusted EBITDA	$	397,715		$	369,182			(7)%	$	782,022		$	754,787			(3)%

Percentage of revenue ex-TAC⁽¹⁾⁽²⁾		37	%		34	%				36	%		35	%

⁽¹⁾	Revenue ex-TAC is calculated as GAAP revenue less TAC.

⁽²⁾

Net income attributable to Yahoo! Inc. as a percentage of GAAP revenue for the three and six months ended June 30, 2013 was 29 percent and 32 percent, respectively. Net income attributable to Yahoo! Inc. as a percentage of GAAP revenue for the three and six months ended June 30, 2012 was 19 percent and 21 percent, respectively.

For the three and six months ended June 30, 2013, adjusted EBITDA decreased 7 percent and 3 percent, respectively, compared to the same periods of 2012, mainly due to a decline in revenue ex-TAC and an increase in global operating costs.

Free Cash Flow (a Non-GAAP Financial Measure)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
	(dollars in thousands)

Net cash provided by operating activities	$	274,560		$	330,828		$	572,013		$	549,510
Acquisition of property and equipment, net		(106,131	)		(82,076	)		(215,922	)		(151,657	)
Dividends received from equity investees		(83,648	)		(123,058	)		(83,648	)		(135,058	)
Excess tax benefits from stock-based awards		8,609			5,706			16,770			18,513

Free cash flow	$	93,390		$	131,400		$	289,213		$	281,308

For the three months ended June 30, 2013, free cash flow increased $38 million, or 41 percent, compared to the same period of 2012. The increase was primarily attributable to an increase in cash provided by operating activities and a decline in capital expenditures. For the six months ended June 30, 2013, free cash flow decreased $8 million, or 3 percent, compared to the same period of 2012. The decrease was primarily attributable to a decline in net cash provided by operating activities, partially offset by a decline in capital expenditures year-over-year.

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 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 have not yet transitioned, revenue continues to be recorded on a gross (before TAC) basis, and TAC is recorded as a part of operating expenses.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as net income attributable to Yahoo! Inc. before taxes, depreciation, amortization of intangible assets, stock-based compensation expense, other income, net (which includes interest), earnings in equity interests, net income attributable to noncontrolling interests, and certain gains, losses, and expenses that we do not believe are indicative of our ongoing results.

Free Cash Flow

Free cash flow is a non-GAAP financial measure defined as net cash provided by operating activities (adjusted to include excess tax benefits from stock-based awards), less (i) acquisition of property and equipment, net, and (ii) dividends received from equity investees.

For additional information about these non-GAAP financial measures, see “Non-GAAP Financial Measures” included in our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Significant Transactions

Stock Repurchase Transactions

During the six months ended June 30, 2013, we repurchased 63 million shares of our outstanding common stock for $1.4 billion. From July 1, 2013 through August 8, 2013, we repurchased an additional approximately 51 million shares of our common stock for $1.5 billion. These repurchases included our repurchase of 40 million shares of common stock beneficially owned by Third Point LLC (“Third Point”) that we repurchased on July 25, 2013. These shares were repurchased pursuant to a Purchase Agreement entered into on July 22, 2013, at $29.11 per share, which equaled the closing price of our common stock on July 19, 2013. Following this repurchase, Third Point beneficially owns less than two percent of our outstanding common stock. As a result and in accordance with the terms of the Settlement Agreement, entered into on May 13, 2012 with Third Point and its affiliates, Daniel S. Loeb, Harry J. Wilson and Michael J. Wolf resigned from our board of directors on July 31, 2013.

As of August 8, 2013, approximately $555 million remains under the $5 billion stock repurchase program that was authorized by our board of directors in May 2012. We plan to continue to repurchase shares of our common stock under this program.

Acquisition of Tumblr

On June 19, 2013, we completed the acquisition of Tumblr, Inc. (“Tumblr”), a blog-hosting website that allows users to post their own content as well as follow or re-blog posts made by other users. The acquisition of Tumblr is expected to bring a significant community of users to the Yahoo! network. The total purchase price of approximately $990 million consisted mainly of cash consideration. See Note 4— “Acquisitions” in the Notes to our condensed consolidated financial statements for additional information.

Initial Repurchase of Alibaba Group Holding Limited Ordinary Shares

See Note 8—“Investments in Equity Interests” in the Notes to our condensed consolidated financial statements for information regarding the repurchase by Alibaba Group Holding Limited (“Alibaba Group”) of 523 million of the 1,047 million ordinary shares of Alibaba Group (the “Shares”) owned by us (the “Initial Repurchase”).

In September 2012, we received net cash proceeds after the payment of taxes and fees from the Initial Repurchase and the $550 million TIPLA payment of approximately $4.3 billion. We committed to return $3.65 billion of these after-tax proceeds to shareholders and have now completed this commitment.

On May 16, 2013, we received $846 million in cash from Alibaba Group to redeem the Alibaba Group Preference Shares. The cash received represented the redemption value, which included the stated value of $800 million plus accrued dividends of $46 million.

Search Agreement with Microsoft Corporation

On December 4, 2009, we entered into a Search and Advertising Services and Sales Agreement (the “Search Agreement”) with Microsoft Corporation (“Microsoft”), which provides for Microsoft to be the exclusive algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites. We also entered into a License Agreement with Microsoft pursuant to which Microsoft acquired an exclusive 10-year license to our core search technology that it will be able to integrate into its existing Web search platforms. The global transition of our algorithmic and paid search platforms to Microsoft’s platform and the migration of paid search advertisers and publishers to Microsoft’s platform are being done on a market-by-market basis.

During the first five years of the Search Agreement, in transitioned markets, we are entitled to receive 88 percent of the revenue generated from Microsoft’s services on Yahoo! Properties. We are also entitled to receive 88 percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue. In the transitioned markets, for search revenue generated

from Microsoft’s services on Yahoo! Properties and Affiliate sites, we report as revenue the 88 percent revenue share, as we are not the primary obligor in the arrangement with the advertisers and publishers. The underlying search advertising services are provided by Microsoft. For new Affiliates during the term of the Search Agreement, and for all Affiliates after the first five years of such term, we will receive 88 percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue and certain Microsoft costs are deducted. On February 23, 2015 (the fifth anniversary of the date that implementation of the Search Agreement commenced), Microsoft will have the option to terminate our sales exclusivity for premium search advertisers. If Microsoft exercises its option, the revenue share rate will increase to 93 percent for the remainder of the term of the Search Agreement, unless we exercise our option to retain our sales exclusivity, in which case the revenue share rate would be reduced to 83 percent for the remainder of the term. If Microsoft does not exercise such option, the revenue share rate will be 90 percent for the remainder of the term of the Search Agreement. The term of the Search Agreement is 10 years from February 23, 2010, subject to earlier termination as provided in the Search Agreement.

Under the Search Agreement, for each market, Microsoft generally guarantees Yahoo!’s revenue per search (“RPS Guarantee”) on Yahoo! Properties only for 18 months after the transition of paid search services to Microsoft’s platform in that market based on the difference in revenue per search between the pre-transition and post-transition periods and certain other factors. We record the RPS Guarantee as search revenue in the quarter the amount becomes fixed, which is typically the quarter in which the associated shortfall in revenue per search occurred. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013 and in the second quarter of 2013, Microsoft extended the RPS Guarantee in the U.S. through March 2014. In June 2013, Microsoft and we agreed upon the RPS Guarantee payment amounts to be paid to us for the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013. We also agreed to fixed quarterly payments in lieu of the RPS Guarantee in the U.S. for the quarters ending September 30, 2013, December 31, 2013 and March 31, 2014. In addition, we agreed to waive our right to receive any future RPS Guarantee payments in all other markets except Taiwan and Hong Kong. We do not expect the remaining quarterly payments from Microsoft and any RPS Guarantee payments for Taiwan and Hong Kong to have a material impact on our expected future revenue.

We completed the transition of our algorithmic and paid search platforms to the Microsoft platform in the U.S. and Canada in the fourth quarter of 2010. In 2011, we completed the transition of algorithmic search in all other markets and the transition of paid search in India. In 2012, we completed the transition of paid search in most of the EMEA markets as well as six markets in Latin America. In the second quarter of 2013, we completed the transition of paid search in Brazil. We are continuing to work with Microsoft on transitioning paid search in the remaining markets. The market-by-market transition of our paid search platform to Microsoft’s platform and the migration of paid search advertisers and publishers to Microsoft’s platform are expected to continue through 2013, and possibly into 2014.

From February 23, 2010 until the applicable services are fully transitioned to Microsoft in all markets, Microsoft will also reimburse us for the costs of operating algorithmic and paid search services subject to specified exclusions and limitations. Our results reflect search operating cost reimbursements from Microsoft under the Search Agreement of $17 million and $34 million for the three and six months ended June 30, 2012, respectively, and $18 million and $31 million for the three and six months ended June 30, 2013, respectively. Search operating cost reimbursements are expected to decline as we fully transition all markets and, in the long term, the underlying expenses are not expected to be incurred under our cost structure.

We record receivables for the reimbursements as costs are incurred and apply them against the operating expense categories in which the costs were incurred. Of the total amounts incurred during the year ended December 31, 2012 and the six months ended June 30, 2013, the total reimbursements not yet received from Microsoft of $5 million and $4 million, were classified as part of prepaid expenses and other current assets on our condensed consolidated balance sheets as of December 31, 2012 and June 30, 2013, respectively.

See Note 16 — “Search Agreement with Microsoft Corporation” in the Notes to our condensed consolidated financial statements for additional information.

Results of Operations


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,					Percent Change
	2012		2013				2012		2013
	(dollars in thousands)
Revenue for groups of similar services:
Display	$	534,972	$	471,742		(12)%	$	1,046,189	$	926,813			(11)%
Search		460,969		418,202		(9)%		931,366		842,889			(9)%
Other		221,853		245,300		11 %		461,472		505,910			10 %

Total revenue	$	1,217,794	$	1,135,244		(7)%	$	2,439,027	$	2,275,612			(7)%
Cost of revenue — traffic acquisition costs		137,025		64,316		(53)%		281,116		130,384			(54)%
Cost of revenue — other		278,453		271,262		(3)%		532,432		549,269			3 %
Sales and marketing		272,910		279,738		3 %		558,178		536,757			(4)%
Product development		199,628		236,248		18 %		428,106		455,828			6 %
General and administrative		136,117		135,039		(1)%		260,388		268,460			3 %
Amortization of intangibles		9,756		8,084		(17)%		19,809		15,449			(22)%
Restructuring charges (reversals), net		129,092		3,578		(97)%		134,809		(3,484	)		(103)%

Total operating expenses	$	1,162,981	$	998,265		(14)%	$	2,214,838	$	1,952,663			(12)%

Income from operations	$	54,813	$	136,979		150 %	$	224,189	$	322,949			44 %

Includes:
Stock-based compensation expense	$	49,571	$	68,136		37 %	$	105,537	$	112,741			7 %

The following table sets forth selected information concerning our results of operations as a percentage of revenue for the period indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
Revenue for groups of similar services:
Display		44%		42%		43%		41%
Search		38%		37%		38%		37%
Other		18%		21%		19%		22%

Total revenue		100%		100%		100%		100%
Cost of revenue — traffic acquisition costs		11%		6%		12%		6%
Cost of revenue — other		23%		24%		22%		24%
Sales and marketing		22%		24%		23%		23%
Product development		16%		21%		17%		20%
General and administrative		11%		12%		11%		12%
Amortization of intangibles		1%		1%		1%		1%
Restructuring charges (reversals), net		11%		—		5%		—

Total operating expenses		95%		88%		91%		86%

Income from operations		5%		12%		9%		14%

Management Reporting

We continue to manage our business geographically. The primary areas of measurement and decision-making are currently the Americas, EMEA, and Asia Pacific. Management relies on an internal reporting process that provides revenue ex-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, our segments. The Company is currently evaluating how it will report the Tumblr acquisition for segment reporting purposes.


	Three Months Ended				Percent Change		Six Months Ended					Percent Change
	June 30, 2012		June 30, 2013				June 30, 2012		June 30, 2013
	(dollars in thousands)
Revenue by segment:
Americas	$	821,751	$	828,537		1 %	$	1,657,784	$	1,670,732			1 %
EMEA		128,099		97,387		(24)%		262,061		192,211			(27)%
Asia Pacific		267,944		209,320		(22)%		519,182		412,669			(21)%

Total revenue	$	1,217,794	$	1,135,244		(7)%	$	2,439,027	$	2,275,612			(7)%

TAC by segment:
Americas	$	45,910	$	37,120		(19)%	$	88,865	$	74,642			(16)%
EMEA		34,187		11,372		(67)%		79,849		22,908			(71)%
Asia Pacific		56,928		15,824		(72)%		112,402		32,834			(71)%

Total TAC	$	137,025	$	64,316		(53)%	$	281,116	$	130,384			(54)%

Revenue ex-TAC by segment:
Americas	$	775,841	$	791,417		2 %	$	1,568,919	$	1,596,090			2 %
EMEA		93,912		86,015		(8)%		182,212		169,303			(7)%
Asia Pacific		211,016		193,496		(8)%		406,780		379,835			(7)%

Total revenue ex-TAC	$	1,080,769	$	1,070,928		(1)%	$	2,157,911	$	2,145,228			(1)%

Direct costs by segment⁽¹⁾:
Americas		181,510		172,268		(5)%		360,735		342,392			(5)%
EMEA		41,277		41,416		—		81,498		79,844			(2)%
Asia Pacific		56,248		49,667		(12)%		107,739		104,681			(3)%
Global operating costs⁽²⁾⁽³⁾		410,519		438,395		7 %		832,417		863,524			4 %
Depreciation and amortization		157,739		160,489		2 %		310,987		322,581			4 %
Stock-based compensation expense		49,571		68,136		37 %		105,537		112,741			7 %
Restructuring charges (reversals), net		129,092		3,578		(97)%		134,809		(3,484	)		(103)%

Income from operations	$	54,813	$	136,979		150 %	$	224,189	$	322,949			44 %

⁽¹⁾	Direct costs for each segment include cost of revenue — other, as well as other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses.

⁽²⁾	Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.

⁽³⁾	The net cost reimbursements from Microsoft pursuant to the Search Agreement are primarily included in global operating costs.

Revenue

We generate revenue principally from display and search advertising on Yahoo! Properties and Affiliate sites. The majority of our revenue comes from display and search advertising on Yahoo! Properties. Our margins on revenue from Yahoo! Properties advertising are higher than our margins on revenue from display and search advertising on Affiliate sites as we pay TAC to our Affiliates. Additionally, we generate revenue from other sources including listings-based services, facilitating commercial transactions, royalties, and consumer and business fee-based services.

We earn revenue from guaranteed or “premium” display advertising by delivering advertisements according to advertisers’ specified criteria, such as number of impressions during a fixed period on a specific placement. Also, we earn revenue from non-guaranteed or “non-premium” display advertising by delivering advertisements for advertisers purchasing inventory on a preemptible basis, which means that the advertisement may or may not appear, inventory is not reserved and position placement is not assured. Generally, we make our non-premium display inventory available through the Right Media Exchange.

We are increasing our strategic focus on the mobile industry due to a shift in Internet access by users and have hired engineering and technical talent to help us accelerate our efforts in mobile development. At present, our display and search revenue from mobile are not material.

For additional information about how we generate and recognize revenue, see “Results of Operations—Revenue” included in our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Display and Search Metrics

We present information below regarding the “Number of Ads Sold” and “Price-per-Ad” for display and the number of “Paid Clicks” and “Price-per-Click” for search. This information is derived from internal data. We periodically review and refine our methodologies for monitoring, gathering, and counting Number of Ads Sold and Paid Clicks. Based on this process, from time to time, we update such methodologies.

Due to the closure of the Korea business in the fourth quarter of 2012, “Number of Ads Sold,” “Paid Clicks,” “Price-per-Ad,” and “Price-per-Click,” as presented below, exclude the Korea market for all periods presented.

“Number of Ads Sold” is defined as the total number of ads displayed, or impressions, for paying advertisers on Yahoo! Properties. “Price-per-Ad” is defined as display revenue from Yahoo! Properties divided by our Number of Ads Sold. Our price and volume metrics for display are based on display revenue which we report on a gross basis (before TAC). Our price and volume metrics for display exclude both the Number of Ads Sold and the related revenue for certain regions where we did not retain historical information in a manner that would support period-to-period comparison on these metrics. The countries and regions included in our display metrics are: the United States, the United Kingdom, France, Germany, Spain, Italy, Taiwan, Hong Kong, Southeast Asia, and India.

“Paid Clicks” are defined as the total number of times an end-user clicks on a sponsored listing on Yahoo! Properties and Affiliate sites for which an advertiser pays on a per click basis. “Price-per-Click” is defined as search revenue divided by our Paid Clicks. Although Paid Clicks and Price-per-Click are predominantly search metrics, we include Paid Clicks and the related revenue from certain display advertisements that are sold on a price-per-click basis. The revenue associated with display Paid Clicks is not material and is excluded from our display price volume metrics. Our price and volume metrics for search are based on gross search revenue (before TAC) in all markets in which we operate and include any Microsoft RPS Guarantee payments.

Display Revenue

Display revenue for the three and six months ended June 30, 2013 decreased by 12 percent and 11 percent, respectively, as compared to the same periods of 2012. The decline for the three and six months ended June 30, 2013 was primarily attributable to a decline in pricing due to more ads sold on a non-premium basis.

For the three and six months ended June 30, 2013, Number of Ads Sold decreased 2 percent and 5 percent, respectively, and Price-per-Ad decreased 12 percent and 7 percent, respectively, as compared to the same periods of 2012. The decrease in Number of Ads Sold for the three and six months ended June 30, 2013 was attributable to a decline in supply of premium placements. The decrease in Price-per-Ad for the three months ended June 30, 2013 was due to a lower percentage of ads sold on a premium basis and a decline in pricing for non-premium advertising year-over-year. The decrease in Price-per-Ad for the six months ended June 30, 2013 was due to a shift in the mix of ads sold towards lower monetizing geographic regions, as well as a lower percentage of ads sold on a premium basis.

Search Revenue

Search revenue for both the three and six months ended June 30, 2013 decreased by 9 percent, as compared to the same periods of 2012. Search revenue decreased for the three and six months ended June 30, 2013 due to declines in the Asia Pacific region resulting from the closure of our Korea business, and declines in the EMEA region due to the required change in revenue presentation for transitioned markets from a gross (before TAC) to a net (after TAC) basis. This was partially offset by increased search revenue in the Americas region which resulted from an increase in sponsored searches on Yahoo! Properties and higher revenue per search.

For the three and six months ended June 30, 2013, Paid Clicks increased 21 percent and 19 percent, respectively, and Price-per-Click decreased 8 percent and 7 percent, respectively, as compared to the same periods of 2012. The increase in Paid Clicks for the three months ended June 30, 2013 was attributable to improved ad formats launched late last year and an increase in Paid Clicks resulting from the redesign of the search user experience. The increase in Paid Clicks for the six months ended June 30, 2013 was attributable to improved ad formats launched late last year. The decrease in Price-per-Click for the three and six months ended June 30, 2013 was primarily due to a higher mix of traffic in lower monetizing geographic regions.

Other Revenue

Other revenue for the three and six months ended June 30, 2013 increased by 11 percent and 10 percent, respectively, as compared to the same periods of 2012. The increase for both the three and six months ended June 30, 2013 was primarily due to increased royalty revenue resulting from the amended TIPLA agreement with Alibaba Group. This was partially offset by a decrease in listings-based revenue in the Americas region.

Revenue ex-TAC by Segment

Americas

Americas revenue ex-TAC for the three and six months ended June 30, 2013 increased $16 million, or 2 percent, and $27 million, or 2 percent, respectively, as compared to the same periods of 2012. The increase in Americas revenue ex-TAC for the three and six months ended June 30, 2013 was primarily attributable to increased search revenue ex-TAC and fees revenue. The increase in search revenue ex-TAC was attributable to an increase in Paid Clicks on Yahoo! Properties, as well as higher revenue per search. The increase in fees revenue was primarily due to increased royalty revenue resulting from the amended TIPLA agreement with Alibaba Group. This was partially offset by a decline in display revenue ex-TAC on Yahoo! Properties due to declines in the Number of Ads Sold and Price-per-Ad.

Revenue ex-TAC in the Americas accounted for approximately 74 percent of total revenue ex-TAC for both the three and six months ended June 30, 2013 compared to 72 percent and 73 percent for the three and six months ended June 30, 2012, respectively.

EMEA

EMEA revenue ex-TAC for the three and six months ended June 30, 2013 decreased $8 million, or 8 percent, and $13 million, or 7 percent, respectively, as compared to the same periods of 2012. The declines in EMEA revenue ex-TAC for the three months ended June 30, 2013 were primarily related to decreased display revenue ex-TAC on Yahoo! Properties due to a decrease in premium advertising. The declines in EMEA revenue ex-TAC for the six months ended June 30, 2013 were primarily related to decreased search and display revenue ex-TAC. Search revenue ex-TAC declined due to decreased revenue resulting from the revenue share with Microsoft associated with the Search Agreement, as well as decreased Affiliate revenue relating to traffic quality initiatives conducted by Yahoo!. Display revenue ex-TAC on Yahoo! Properties declined due to a decrease in premium advertising.

Revenue ex-TAC in EMEA accounted for approximately 8 percent of total revenue ex-TAC for both the three and six months ended June 30, 2013 compared to 9 percent and 8 percent for the three and six months ended June 30, 2012, respectively.

Asia Pacific

Asia Pacific revenue ex-TAC for the three and six months ended June 30, 2013 decreased $18 million, or 8 percent, and $27 million, or 7 percent, respectively, as compared to the same periods of 2012. The decline for the three and six months ended June 30, 2013 was due to a decrease in search revenue ex-TAC in the region related to the closure of our Korea business and unfavorable foreign exchange rate fluctuations.

Revenue ex-TAC in Asia Pacific accounted for approximately 18 percent of total revenue ex-TAC for both the three and six months ended June 30, 2013 compared to 20 percent and 19 percent for the three and six months ended June 30, 2012, respectively.

Direct Costs by Segment

Americas

For the three and six months ended June 30, 2013, direct costs attributable to the Americas segment decreased $9 million, or 5 percent, and $18 million, or 5 percent, respectively, as compared to the same periods of 2012. For the three months ended June 30, 2013, the decrease in direct costs was primarily due to a decline year-over-year in compensation costs, related to reduced headcount in the region year-over-year, marketing expenses, and bandwidth costs. This decrease was partially offset by higher content costs. For the six months ended June 30, 2013, the decrease in direct costs was primarily due to declines in compensation costs and marketing expenses which were partially offset by higher content costs.

EMEA

For the three months ended June 30, 2013, direct costs attributable to the EMEA segment were flat compared to the same period of 2012, due to a decrease in compensation costs offset by an increase in marketing expenses and content costs. For the six months ended June 30, 2013, direct costs attributable to the EMEA segment decreased $2 million, or 2 percent, as compared to the same period of 2012. This was due to a decline in compensation costs related to reduced headcount in the region year-over-year, which was partially offset by increases in marketing expenses and content costs.

Asia Pacific

For the three and six months ended June 30, 2013, direct costs attributable to the Asia Pacific segment decreased $7 million, or 12 percent, and $3 million, or 3 percent, respectively, as compared to the same periods of 2012. For the three and six months ended June 30, 2013, the decrease was primarily attributable to declines in compensation costs, related to reduced headcount in the region year-over-year, which were primarily related to the closure of our Korea business, as well as declines in content costs and third-party service provided expenses. This overall decrease was partially offset by an increase in other cost of revenue in the region.

Operating Costs and Expenses

Traffic Acquisition Costs for Non-transitioned Search Markets and All Display Markets

TAC consists of payments made to third-party entities that have integrated 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 payments based on a guaranteed minimum amount of traffic delivered, which often carry reciprocal performance guarantees from the Affiliate, or variable payments based on a percentage of our revenue or based on a certain metric, such as number of searches or paid clicks. We expense TAC under two different methods. Agreements with fixed payments are expensed ratably over the term the fixed payment covers, and agreements based on a percentage of revenue, number of searches, or other metrics are expensed based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate.

TAC for the three and six months ended June 30, 2013 decreased $73 million, or 53 percent, and $151 million, or 54 percent, as compared to the same periods of 2012. The decrease for the three months ended June 30, 2013, compared to 2012, was primarily attributable to declines in the Asia Pacific, EMEA and Americas regions of $41 million, $23 million and $9 million, respectively. The decrease for the six months ended June 30, 2013, compared to 2012, was primarily attributable to declines in the Asia Pacific, EMEA and Americas regions of $80 million, $57 million and $14 million, respectively. The decline for both the three and six months was due to (i) the closure of our Korea business in the Asia Pacific region, (ii) the required change in revenue presentation for transitioned markets from a gross (before TAC) to a net (after TAC) basis in the EMEA region, and (iii) a decline in display revenue in the Americas region.

Cost of Revenue — Other

Cost of revenue — other consists of bandwidth costs and other expenses associated with the production and usage of Yahoo! Properties, including amortization of acquired intellectual property rights and developed technology. Cost of revenue—other also includes costs for Yahoo!’s technology platforms and infrastructure, including depreciation expense and other operating costs, directly related to revenue generating activities.

Cost of revenue — other decreased $7 million, or 3 percent, and increased $17 million, or 3 percent, for the three and six months ended June 30, 2013, as compared to the same periods of 2012. The decrease for the three months ended June 30, 2013, compared to 2012, was primarily due to declines in bandwidth costs and amortization of intellectual property, which was partially offset by increases in content costs and incremental depreciation of server, storage and network equipment. The increase for the six months ended June 30, 2013, compared to 2012, was primarily due to incremental depreciation of server, storage and network equipment and developed software, content costs. The increase was also due to legal accrual reversals in the six months ended June 30, 2012 that did not occur in the six months ended June 30, 2013. This overall increase was partially offset by a decline in bandwidth costs and amortization of intellectual property.

Sales and Marketing

Sales and marketing expenses consist primarily of advertising and other marketing-related expenses, compensation-related expenses (including stock-based compensation expense), sales commissions, and travel costs.

Sales and marketing expenses for the three and six months ended June 30, 2013 increased $7 million, or 3 percent, and decreased $21 million, or 4 percent, as compared to the same periods of 2012. For the three months ended June 30, 2013, sales and marketing expenses increased due to increases in marketing expenses, incremental depreciation expenses, and stock-based compensation expenses, which were partially offset by a decline in compensation costs. The increase in marketing expenses was primarily due to the On the Road with Yahoo! and Flickr marketing campaigns in the second quarter of 2013, for which there were no similar campaigns in 2012. The decline in compensation costs was primarily due to a decline in headcount in the sales and marketing function. The decrease for the six months ended June 30, 2013 was primarily due to a decline in compensation costs, as discussed above, partially offset by an increase in marketing expenses, as discussed above, and incremental depreciation expenses.

Product Development

Product development expenses consist primarily of compensation-related expenses (including stock-based compensation expense) incurred for the development of, enhancements to and maintenance of Yahoo! Properties, classification and organization of listings within Yahoo! Properties, research and development, and Yahoo!’s technology platforms and infrastructure. Depreciation expense and other operating costs are also included in product development.

Product development expenses for the three and six months ended June 30, 2013 increased $37 million, or 18 percent, and $28 million, or 6 percent, as compared to the same periods of 2012. For the three months ended June 30, 2013, the increase was primarily attributable to increases in facilities and equipment expense and stock-based compensation expense, as well as a decrease in capitalized labor projects resulting in an increase in expense. For the six months ended June 30, 2013, the increase was primarily attributable to an increase in facilities and equipment expense, as well as a decrease in capitalized labor projects resulting in an increase in expense. This overall increase was partially offset by a decline in compensation costs related to reduced headcount in the function.

General and Administrative

General and administrative expenses consist primarily of compensation-related expenses (including stock-based compensation expense) related to other corporate departments and fees for professional services.

General and administrative expenses for the three months ended June 30, 2013 was essentially flat, and increased $8 million, or 3 percent, for the six months ended June 30, 2013 as compared to the same periods of 2012. For the six months ended June 30, 2013, the increase was due to increases in facilities and equipment expense and stock-based compensation expense primarily due to performance-based awards granted. This overall increase was partially offset by a decrease in professional services expense, as well as an increase in third-party reimbursements resulting in a decrease in expense in the general and administrative function.

Amortization of Intangibles

We have purchased, and expect to continue purchasing, assets and/or businesses, which may include the purchase of intangible assets. Amortization of developed technology and acquired intellectual property rights is included in the cost of revenue — other and not in amortization of intangibles.

Amortization of intangibles for the three and six months ended June 30, 2013 decreased $2 million, or 17 percent, and $4 million, or 22 percent, as compared to the same periods of 2012. For the three months ended June 30, 2013, the decrease in amortization of intangibles was primarily driven by fully amortized assets acquired in prior years, which was partially offset by incremental amortization from acquisitions completed in 2013. For the six months ended June 30, 2013, the decrease in amortization of intangibles was driven by fully amortized assets acquired in prior years.

Restructuring Charges (Reversals), Net

Restructuring charges (reversals), net was comprised of the following (in thousands):


	Three Months Ended June 30, 2012										Six Months Ended June 30, 2012
	Restructuring Plans Prior to 2012		Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total			Restructuring Plans Prior to 2012		Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total
Employee severance pay and related costs	$	670	$	91,066		$	—	$	91,736		$	3,661	$	91,066		$	—	$	94,727
Non-cancelable lease, contract terminations, and other charges		1,530		617			—		2,147			4,256		617			—		4,873
Other non-cash charges, net		—		38,638			—		38,638			—		38,638			—		38,638

Sub-total before reversal of stock-based compensation expense		2,200		130,321			—		132,521			7,917		130,321			—		138,238
Reversal of stock-based compensation expense for forfeitures		—		(3,429	)		—		(3,429	)		—		(3,429	)		—		(3,429	)

Restructuring charges, net	$	2,200	$	126,892		$	—	$	129,092		$	7,917	$	126,892		$	—	$	134,809


	Three Months Ended June 30, 2013											Six Months Ended June 30, 2013
	Restructuring Plans Prior to 2012			Q2’12 Restructuring Plan			Q4’12 Korea Business Closure		Total			Restructuring Plans Prior to 2012			Q2’12 Restructuring Plan			Q4’12 Korea Business Closure			Total
Employee severance pay and related costs	$	(436	)	$	(2,712	)	$	—	$	(3,148	)	$	(439	)	$	(12,977	)	$	(103	)	$	(13,519	)
Non-cancelable lease, contract terminations, and other charges		6,624			33			69		6,726			9,435			98			(36	)		9,497
Other non-cash charges, net		—			—			—		—			—			—			538			538

Restructuring charges (reversals), net	$	6,188		$	(2,679	)	$	69	$	3,578		$	8,996		$	(12,879	)	$	399		$	(3,484	)

Restructuring Plans Prior to 2012. Prior to 2012, we implemented workforce reductions, a strategic realignment, and consolidation of certain real estate facilities and data centers to reduce our cost structure, align resources with our product strategy, and improve efficiency. During the three and six months ended June 30, 2012, we incurred total pre-tax cash charges of $2 million and $8 million, respectively, in severance, facility, and other related costs under these restructuring plans, the majority of which related to the Americas segment. During the three and six months ended June 30, 2013, we incurred total pre-tax cash charges of $6 million and $9 million, respectively, in severance, facility, and other related costs under these restructuring plans. Of the $6 million recorded for the three months ended June 30, 2013, $2 million related to the Americas segment and $4 million related to the EMEA segment. Of the $9 million recorded for the six months ended June 30, 2013, $5 million related to the Americas segment and $4 million related to the EMEA segment.

As of June 30, 2013, the aggregate outstanding restructuring liability related to the Restructuring Plans Prior to 2012 was $28 million, most of which relates to non-cancelable lease costs that we expect to pay over the terms of the related obligations, which extend to the second quarter of 2017.

Q2’12 Restructuring Plan. During the second quarter of 2012, we began implementing the Q2’12 Restructuring Plan to reduce our worldwide workforce by approximately 2,000 employees and to consolidate certain real estate and data center facilities. During the three months ended June 30, 2012, we incurred total pre-tax cash charges of $91 million in severance related costs and $39 million in non-cash facility and other asset impairment charges under this restructuring plan. The total pre-tax charges were offset by a $3 million credit related to non-cash stock-based compensation expense reversals for unvested stock awards that were forfeited. Of the $127 million in restructuring charges, net, recorded in the three months ended June 30, 2012, $86 million related to the Americas segment, $35 million related to the EMEA segment, and $6 million related to the Asia Pacific segment. During the three months ended

June 30, 2013, we recorded a net reversal of $3 million for severance-related costs due to changes to original estimates and redeployments and voluntary resignations of employees prior to their planned severance dates. During the six months ended June 30, 2013, we recorded $6 million in severance and facility related costs which were offset by a credit of $19 million for severance-related reversals due to changes to original estimates and redeployments and voluntary resignations of employees prior to their planned severance dates. Of the $3 million credit in restructuring charges, net, recorded in the three months ended June 30, 2013, $2 million related to the Americas segment and $1 million related to the EMEA segment. Of the $13 million credit in restructuring charges, net, recorded in the six months ended June 30, 2013, $8 million related to the Americas segment and $5 million related to the EMEA segment.

As of June 30, 2013, the aggregate outstanding restructuring liability related to the Q2’12 Restructuring Plan was $8 million, most of which relates to severance-related costs that we expect to be substantially paid by the fourth quarter of 2013. The remaining liability relates to non-cancelable lease costs that we expect to pay over the terms of the related obligations, which extend to the fourth quarter of 2021.

Q4’12 Korea Business Closure. During the fourth quarter of 2012, we decided to close our Korea business to streamline our operations and focus our resources. During both the three and six months ended June 30, 2013, we recorded net pre-tax charges of less than $1 million in severance, facility and contract termination costs related to the Asia Pacific segment.

As of June 30, 2013, the aggregate outstanding restructuring liability related to the Q4’12 Korea Business Closure was $1 million, most of which relates to contract termination costs that we expect to be paid by the first quarter of 2014.

See Note 13 — “Restructuring Charges (Reversals), Net” in the Notes to our condensed consolidated financial statements for additional information.

Other Income, Net

Other income, net was as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2012		June 30, 2013		June 30, 2012		June 30, 2013
Interest, dividend, and investment income	$	3,584	$	21,934	$	9,280	$	47,852
Other		16,591		1,672		13,173		(7,174	)

Total other income, net	$	20,175	$	23,606	$	22,453	$	40,678

For the three and six months ended June 30, 2013, interest, dividend and investment income increased primarily due to dividend income on the Alibaba Group Preference Shares.

The decrease in other for the three months ended June 30, 2013, was primarily attributable to an investment sale that occurred in the second quarter of 2012, for which no similar transactions occurred in 2013. For the six months ended June 30, 2013, other decreased due to foreign exchange losses due to re-measurement of monetary assets and liabilities denominated in non-functional currencies as well as an investment sale that occurred in the second quarter of 2012, for which no similar transactions occurred in 2013.

Income Taxes

Our effective tax rate is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. Historically, our provision for income taxes has differed from the tax computed at the U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, non-deductible stock-based compensation expense and adjustments to unrecognized tax benefits.

In connection with a review of our cash position and anticipated cash needs for investment in our core business, including potential acquisitions and capital expenditures, and stock repurchases, we made a one-time repatriation of cash from certain of our consolidated foreign subsidiaries in 2012. The remaining undistributed foreign earnings of approximately $2 billion principally related to Yahoo Japan, and future earnings, will continue to be indefinitely reinvested going forward.

During the six months ended June 30, 2013, we settled the income tax examination for the 2005 and 2006 returns with the IRS Appeals Division. That settlement resulted in a reduction of tax reserves. The income tax examination for the 2007 and 2008 returns is currently under protest with the IRS Appeals Division relating to certain proposed adjustments to our intercompany transfer pricing methodology. An initial meeting with the IRS Appeals Division is expected to be held in 2013 to address those matters. Our 2009 and 2010 returns are currently under IRS examination.

As of June 30, 2013, our 2005 through 2008 tax returns are also under various stages of audit by the California Franchise Tax Board. While the California Franchise Tax Board has not reached any conclusions on the 2007 and 2008 returns, we have protested the proposed California Franchise Tax Board’s adjustments to the 2005 and 2006 returns. We are also in various stages of examination and appeal in connection with our taxes in foreign jurisdictions, which generally span tax years 2005 through 2011.

Our gross amount of unrecognized tax benefits as of June 30, 2013 is $715 million, of which $633 million is recorded on our condensed consolidated balance sheets. The gross unrecognized tax benefits as of June 30, 2013 decreased by $12 million from the recorded balance as of December 31, 2012. While it is difficult to determine when the examinations will be settled or their final outcomes, certain audits in various jurisdictions related to multinational income tax issues are expected to be resolved in the foreseeable future. As a result, it is reasonably possible that our unrecognized tax benefits could be reduced by up to approximately $35 million in the next twelve months. We believe that we have adequately provided for any reasonably foreseeable adjustment and that any settlement will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

We may have additional tax liabilities in China related to the sale to Alibaba Group of 523 million Shares of Alibaba Group that took place during the year ended December 31, 2012. Any taxes assessed and paid in China are expected to be ultimately offset and recovered in the U.S.

During the year ended December 31, 2012, tax authorities from the Brazilian State of Sao Paulo assessed certain indirect taxes against our Brazilian subsidiary, Yahoo! do Brasil Internet Ltda., related to online advertising services. The assessment totaling approximately $85 million is for calendar years 2008 and 2009. We currently believe the assessment is without merit. We do not believe that it is probable the assessment will be sustained upon appeal, and accordingly, we have not recorded an accrual for the assessment.

Earnings in Equity Interests

Earnings in equity interests for the three and six months ended June 30, 2013 was $225 million and $442 million, respectively, compared to $180 million and $352 million for the same periods in 2012. The increase for the three and six months ended June 30, 2013 was due primarily to improved financial performance for Alibaba Group and Yahoo Japan. See Note 8 — “Investments in Equity Interests” in the Notes to our condensed consolidated financial statements for additional information. We record earnings in equity interests one quarter in arrears.

Noncontrolling Interests

Noncontrolling interests represent the noncontrolling holders’ percentage share of income or losses from the subsidiaries in which we hold a majority, but less than 100 percent, ownership interest and the results of which are consolidated in our condensed consolidated financial statements.

Liquidity and Capital Resources


	December 31, 2012			June 30, 2013
	(Dollars in thousands)
Cash and cash equivalents	$	2,667,778		$	1,142,223
Short-term marketable securities		1,516,175			1,486,591
Long-term marketable securities		1,838,425			2,161,814

Total cash, cash equivalents, and marketable securities	$	6,022,378		$	4,790,628

Percentage of total assets		35	%		30	%


	Six Months Ended June 30,
Cash Flow Highlights	2012			2013
	(In thousands)
Net cash provided by operating activities	$	572,013		$	549,510
Net cash used in investing activities	$	(100,628	)	$	(704,308	)
Net cash used in financing activities	$	(472,082	)	$	(1,340,135	)

Our operating activities for the six months ended June 30, 2013 generated adequate cash to meet our operating needs.

As of June 30, 2013, we had cash, cash equivalents, and marketable securities totaling $4.8 billion compared to $6 billion at December 31, 2012.

During the six months ended June 30, 2013, we repurchased 63 million shares of our outstanding common stock for $1.4 billion. From July 1, 2013 through August 8, 2013, we repurchased approximately 51 million shares of our common stock for $1.5 billion, including 40 million shares of common stock beneficially owned by Third Point that we repurchased on July 25, 2013. See “Significant Transactions—Stock Repurchase Transactions” for additional information.

Our foreign subsidiaries held $544 million of our total $4.8 billion of cash and cash equivalents and marketable securities as of June 30, 2013. Cumulative earnings in our consolidated foreign subsidiaries and the related potential tax effect of repatriation are not material to our condensed consolidated financial statements.

On October 19, 2012, we entered into a credit agreement (the “Credit Agreement”) with Citibank, N.A., as Administrative Agent, and the other lenders party thereto from time to time, which matures on October 18, 2013. As of June 30, 2013, we were in compliance with the financial covenants in the credit facility and no amounts were outstanding. See Note 10 — “Credit Facility” in the Notes to our condensed consolidated financial statements for additional information regarding our Credit Agreement. After June 30, 2013, we borrowed approximately $150 million under our credit facility for the repurchase of shares of our common stock. See Note 17 — Subsequent Events” in the Notes to our condensed consolidated financial statements for additional information.

We monitor our exposure to European markets, and as of June 30, 2013 we do not have any material direct exposure to European sovereign debt securities. We invest a portion of excess operating cash in money market funds denominated in Euros and British pounds, and through some of these funds we may have immaterial indirect exposure to high-credit quality European sovereign debt securities.

We currently hedge our net investment in Yahoo Japan with forward contracts to reduce the risk that our investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. The forward contracts are required to be settled in cash and the amount of cash payment we receive or could be required to pay upon settlement could be material.

We expect to continue to evaluate possible acquisitions of, or strategic investments in, businesses, products, and technologies that are complementary to our business, which acquisitions and investments may require the use of cash.

We expect to continue to generate positive cash flows from operations for the third quarter of 2013. We use cash generated by operations as our primary source of liquidity, since we believe that internally generated cash flows are sufficient to support our business operations and capital expenditures. We believe that existing cash, cash equivalents, and investments in marketable securities, together with any cash generated from operations and borrowings under the Credit Agreement, will be sufficient to meet normal operating requirements including capital expenditures for the next twelve months.

Cash Flow Changes

Net cash provided by operating activities. For the six months ended June 30, 2013, operating activities provided $550 million in cash. We generated adjusted EBITDA of $755 million and received dividends of $135 million, which were partially offset by changes in working capital: accrued expenses and other liabilities decreased $70 million, accounts payable decreased $60 million, deferred revenue decreased $75 million and prepaid expenses and other current assets increased $100 million, partially offset by a decrease in accounts receivable of $59 million. For the six months ended June 30, 2012, operating activities provided $572 million in cash, generated by adjusted EBITDA of $782 million partially offset by changes in working capital: accrued expenses and other liabilities decreased $16 million, accounts payable decreased $36 million, deferred revenue decreased $22 million and accounts receivable increased $10 million, partially offset by a decrease in prepaid expenses and other current assets of $11 million.

Net cash used in investing activities. In the six months ended June 30, 2013, the $704 million used in investing activities was due to net purchases of marketable securities of $323 million, $152 million used for capital expenditures and $1,029 million used for acquisitions and other activities, partially offset by $800 million received from the redemption of the Alibaba Group Preference Shares. In the six months ended June 30, 2012, the $101 million used in investing activities was due to $216 million used for capital expenditures, partially offset by net proceeds of $102 million received from sales and maturities of marketable securities and $13 million of proceeds from the sale of investments and other activities.

Net cash used in financing activities. In the six months ended June 30, 2013, the $1,340 million used in financing activities was due to $1,428 million used for the repurchase of 63 million shares of common stock at an average price of $22.51 per share and $54 million used for tax withholding payments related to net share settlements of restricted stock units and other financing activities. This use of cash was partially offset by $123 million in cash proceeds received from employee stock option exercises and employee stock purchases made through our employee stock purchase plan, and an excess tax benefit from stock-based awards of $19 million. In the six months ended June 30, 2012, $472 million was used in financing activities due to $526 million used for the repurchase of 34 million shares of common stock at an average price of $15.36 per share and $41 million used for tax withholding payments related to net share settlements of restricted stock units and other financing activities. This use of cash was partially offset by $78 million in cash proceeds received from employee stock option exercises and employee stock purchases made through our employee stock purchase plan, and an excess tax benefit from stock-based awards of $17 million.

Capital Expenditures, Net

Capital expenditures have generally been comprised of purchases of computer hardware, software, server equipment, furniture and fixtures, real estate, capitalized software and labor. Capital expenditures, net were $152 million for the six months ended June 30, 2013 compared to $216 million in the same period of 2012. We expect capital expenditures, net to increase in the second half of 2013 from the amount recorded during the six months ended June 30, 2013.

Contractual Obligations and Commitments

Leases. We have entered into various non-cancelable operating and capital lease agreements for office space and data centers globally for original lease periods up to 12 years, expiring between 2013 and 2025.

In May 2013, we entered into a 12 year operating lease agreement for four floors of the former New York Times building in New York City with a total expected minimum lease commitment of $125 million. We have the option to renew the lease for an additional five years. The lease requires monthly payments of approximately $1 million starting in July 2015 through June 2025; however, rent expense will be recorded over the lease term commensurate with the right to control the space which began in July 2013.

A summary of lease commitments as of June 30, 2013 is as follows (in millions):


	Gross Operating Lease Commitments		Capital Lease Commitment
Six months ending December 31, 2013	$	65	$	8
Years ending December 31,
2014		106		15
2015		90		12
2016		67		9
2017		49		9
2018		32		9
Due after 5 years		108		4

Total gross lease commitments	$	517	$	66

Less: interest		—		(17	)

Net lease commitments	$	517	$	49

Affiliate Commitments. In connection with contracts to provide advertising services to Affiliates, we are obligated to make payments, which represent TAC, to our Affiliates. As of June 30, 2013, these commitments totaled $50 million, of which $42 million will be payable in the remainder of 2013, $6 million will be payable in 2014, $1 million will be payable in 2015, and $1 million will be payable in 2016.

Intellectual Property Rights. We are committed to make certain payments under various intellectual property arrangements of up to $30 million through 2023.

Income Taxes. As of June 30, 2013, unrecognized tax benefits of $691 million, including interest and penalties, are recorded on our condensed consolidated balance sheets. Of this amount, we currently expect approximately $30 million to be paid by us in cash in the next 12 months for settlements of tax audits. The settlement period for the residual balance cannot be determined.

Other Commitments and Off-Balance Sheet Arrangements. In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, joint ventures and business partners, purchasers of assets or subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us, services to be provided by us, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to our conduct of the business and tax matters prior to the sale. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us, among other things, to indemnify them against certain 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 may cover certain liabilities arising from our obligation to indemnify our directors and officers, and former directors and officers of acquired companies, in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our condensed consolidated financial statements.

As of June 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, as of June 30, 2013, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the condensed consolidated financial statements. We believe that our critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the condensed consolidated financial statements.

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, including changes 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 do not use derivatives or other financial instruments for trading or speculative purposes.

We generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. We present our derivative assets and liabilities at their gross fair values on the condensed consolidated balance sheets.

Interest Rate Exposure

Our exposure to market risk for changes in interest rates may impact our costs associated with hedging and primarily relates to our cash and marketable securities portfolio. We invest excess cash in money market funds, time deposits, and liquid debt instruments of the U.S. and foreign governments and their agencies, U.S. municipalities, and high-credit corporate issuers which are classified as marketable securities and cash equivalents.

Investments in fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. A hypothetical 100 basis point increase in interest rates would result in a $33 million and $46 million decrease in the fair value of our available-for-sale securities as of December 31, 2012 and June 30, 2013, respectively.

Foreign Currency Exposure

Our foreign currency exposure continues to increase as we grow internationally. The objective of our foreign exchange risk management program is to identify material foreign currency exposures and identify methods to manage these exposures to minimize the potential effects of currency fluctuations on our reported condensed consolidated cash flows and results of operations. Counterparties to our derivative contracts are all major financial institutions.

We transact business in various foreign currencies and have significant international revenue, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates.

Realized and unrealized foreign currency transaction gains and losses were immaterial for the three and six months ended June 30, 2012. Net realized and unrealized foreign currency transaction losses were immaterial for the three months ended June 30, 2013. Net realized and unrealized foreign currency transaction losses were $7 million for the six months ended June 30, 2013. We categorize our foreign currency exposure as follows: 1) net investment, 2) cash flow, 3) balance sheet, and 4) translation.

Net Investment Exposure. In December 2012, we began hedging, on an after-tax basis, our net investment in Yahoo Japan with forward contracts to reduce the risk that our investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. At inception, the forward contracts had maturities ranging from 9 to 15 months. If the Japanese yen appreciates at maturity from the forward contract execution rates, the forward contracts will require us to pay a cash settlement, which may be material. If the Japanese yen depreciates at maturity from the forward contract execution rates, we will receive a cash settlement, which may be material. We have elected to apply net investment hedge accounting and expect the hedges to be effective, allowing changes in fair value of the derivative instrument to be recorded within accumulated other comprehensive income on our condensed consolidated balance sheet. The notional amounts of the foreign currency forward contracts were $3 billion and $3.5 billion as of December 31, 2012 and June 30, 2013, respectively. The fair value of the foreign currency forward contract assets was $3 million as of December 31, 2012, and was included in prepaid expenses and other current assets on our condensed consolidated balance sheets. The fair value of the foreign currency forward contracts were a $436 million asset and a $1 million liability as of June 30, 2013, and were included in prepaid expenses and other current assets and capital lease and other long term liabilities, respectively, on our condensed consolidated balance sheets. Pre-tax net gains of $3 million and $435 million were recorded for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively, and were included in accumulated other comprehensive income on our condensed consolidated balance sheets.

Cash Flow Exposure. In May 2013, we began hedging a portion of our forecasted revenue from Yahoo Japan with forward contracts to reduce the risk that our expected future cash flows from Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations. We entered into foreign currency forward contracts designated as cash flow hedges of varying maturities through January 31, 2014. For derivatives designated as cash flow hedges, the effective portion of the unrealized gains or losses on these forward contracts is recorded in accumulated other comprehensive income on our condensed consolidated balance sheets and reclassified into revenue on the condensed consolidated statements of income when the underlying hedged revenue is recognized. If the cash flow hedges were to become ineffective, the ineffective portion would be immediately recorded in other income, net on the Company’s condensed consolidated statements of income. The cash flow hedges were considered to be effective as of June 30, 2013. The notional amounts of the foreign currency forward contracts were $137 million as of June 30, 2013. The fair value of the foreign currency forward contract net asset was less than $1 million as of June 30, 2013, which was included in prepaid expenses and other current assets on our condensed consolidated balance sheets. A pre-tax gain of less than $1 million was recorded as of June 30, 2013, which was included in accumulated other comprehensive income on our condensed consolidated balance sheets. For the three and six months ended June 30, 2013, we also recorded a loss of less than $1 million, net of tax, for cash flow hedges that settled, which was included in revenue on the condensed consolidated statements of income. We did not enter into any derivative financial instruments of this nature as of June 30, 2012. We expect all of the forward contracts designated as cash flow hedges to be reclassified to revenue within fiscal year 2013, as we expect to recognize the hedged anticipated revenue related to these contracts by December 31, 2013.

Balance Sheet Exposure. We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments hedge assets and liabilities, including intercompany transactions that are denominated in foreign currencies. The balance sheet hedges are carried at fair value with changes in the fair value recorded in other income, net on our condensed consolidated statements of income. These derivative instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains or losses on the assets and liabilities being hedged. The notional amounts of the foreign currency forward contracts were $356 million and $316 million as of December 31, 2012 and June 30, 2013, respectively. As of December 31, 2012, the fair value of the foreign currency forward contracts was a $5 million liability, which was included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. As of June 30, 2013, the fair value of the foreign currency forward contracts was a $1 million net asset and was included in prepaid expenses and other current assets on our condensed consolidated balance sheet. A loss of $5 million and a loss of less than $1 million were recorded for the three months ended June 30, 2012 and 2013, respectively, and were included in other income, net on our condensed consolidated statements of income. A loss of $6 million and a gain of $4 million were recorded for the six months ended June 30, 2012 and 2013, respectively, and were included in other income, net on our condensed consolidated statements of income. We paid $2 million in cash for the settlement of some of the foreign currency forward contracts during the six months ended June 30, 2013.

Translation Exposure. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries and our investments in equity interests into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars results in a gain or loss which is recorded as a component of accumulated other comprehensive income which is part of stockholders’ equity. We do not hedge our exposure to foreign currency risks arising from translation.

A Value-at-Risk (“VaR”) sensitivity analysis was performed on all of our foreign currency derivative positions as of June 30, 2013 and December 31, 2012 to assess the potential impact of fluctuations in exchange rates. The VaR model uses a Monte Carlo simulation to generate thousands of random price paths assuming normal market conditions. The VaR is the maximum expected one day loss in fair value, for a given statistical confidence level, to our foreign currency derivative positions due to adverse movements in rates. The VaR model is used as a risk management tool and is not intended to represent either actual or forecasted losses. Based on the results of the model using a 99 percent confidence interval, we estimate the maximum one-day loss in fair value is $3 million on the notional value of our balance sheet hedges at both June 30, 2013 and December 31, 2012. The maximum one-day loss in fair value is $67 million on the notional value of our net investment hedges at June 30, 2013 compared to a $28 million loss at December 31, 2012. The maximum one-day loss in fair value is $2 million on the notional value of our cash flow hedges at June 30, 2013. There were no cash flow hedges outstanding at December 31, 2012.

Actual future gains and losses associated with our derivative positions may differ materially from the sensitivity analysis performed as of June 30, 2013 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchange rates and our actual exposures and positions. In addition, the VaR sensitivity analysis may not reflect the complex market reactions that may arise from the market shifts modeled within this VaR sensitivity analysis.

Revenue ex-TAC and related expenses generated from our international subsidiaries are generally denominated in the currencies of the local countries. Primary currencies include Australian 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, the translation of these foreign currency-denominated transactions results in reduced consolidated revenue and operating expenses. Conversely, our consolidated revenue and operating expenses will increase if the U.S. dollar weakens against foreign currencies. Using the foreign currency exchange rates from the three and six months ended June 30, 2012, revenue ex-TAC for the Americas segment for the three and six months ended June 30, 2013 would have been higher than we reported by $1 million and $3 million; revenue ex-TAC for the EMEA segment would have been higher than we reported by $2 million and $1 million; and revenue ex-TAC for the Asia Pacific segment would have been higher than we reported by $8 million and $12 million. Using the foreign currency exchange rates from the three and six months ended June 30, 2012, direct costs for the Americas segment for the three and six months ended June 30, 2013 would have been higher than we reported by $1 million for both periods; direct costs for the EMEA segment would have been higher than we reported by $1 million for both periods; and direct costs for the Asia Pacific segment would have been approximately equivalent to what we reported for both periods.

Investment Exposure

We are exposed to investment risk as it relates to changes in the market value of our investments. We have investments in marketable securities of public and private companies.

Our cash and marketable securities investment policy and strategy attempts primarily to preserve capital and meet liquidity requirements. A large portion of our cash is managed by external managers within the guidelines of our investment policy. We protect and preserve invested funds by limiting default, market, and reinvestment risk. To achieve this objective, we maintain our portfolio of cash and cash equivalents and short-term and long-term investments in a variety of liquid fixed income securities, including both government and corporate obligations and money market funds. As of December 31, 2012, net unrealized gains and losses on these investments were not material. As of June 30, 2013, net unrealized losses on these investments were $7 million.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Report. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

For a description of our material legal proceedings, see the section captioned “Contingencies” included in Note 11 — “Commitments and Contingencies” in the Notes to our condensed consolidated financial statements, which is incorporated by reference herein.

Item 1A.

Risk Factors

We have updated the risk factors previously disclosed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on March 1, 2013 (“2012 Annual Report”), as set forth below. We do not believe any of the changes constitute material changes from the risk factors previously disclosed in our 2012 Annual Report.

We face significant competition for users, advertisers, publishers, developers, and distributors.

We face significant competition from integrated online media companies, social networking sites, traditional print and broadcast media, search engines, and various e-commerce sites. In a number of international markets, especially those in Asia, Europe, the Middle East and Latin America, we face substantial competition from local Internet service providers and other portals that offer search, communications, and other commercial services.

Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, 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 distribute our services. We also compete with social media and networking sites which are attracting a substantial and increasing share of users, users’ online time, and online advertising dollars. A key element of our strategy is focusing on mobile devices. A number of our competitors are also focused on devoting significant resources to the development of products and services for mobile devices and currently have mobile revenue significantly greater than ours. If we are unable to develop products for mobile devices that users find engaging and that help us grow our mobile revenue, our competitive position, our financial condition and operating results could be harmed.

In addition, several competitors offer products and services that directly compete for users with our offerings, including e-mail, search, sports, news and finance. Similarly, the advertising networks operated by our competitors or by other participants in the display marketplace offer advertising exchanges, ad networks, demand side platforms, ad serving technologies, sponsored search offerings, and other services that directly compete for advertisers with our offerings. We also compete with traditional print and broadcast media companies to attract domestic and international advertising spending. Some of our existing competitors and possible entrants may have greater brand recognition for certain products and services, more expertise in particular market segments, and greater operational, strategic, technological, financial, personnel, or other resources than we do. Many of our competitors have access to considerable financial and technical resources with which to compete aggressively, including by funding future growth and expansion and investing in acquisitions, technologies, and research and development. Further, emerging start-ups may be able to innovate and provide new products and services faster than we can. In addition, competitors may consolidate or collaborate with each other, and new competitors may enter the market. Some of our competitors in international markets have a substantial competitive advantage over us because they have dominant market share in their territories, are owned by local telecommunications providers, have greater local brand recognition, are focused on a single market, are more familiar with local tastes and preferences, or have greater regulatory and operational flexibility due to the fact that we may be subject to both U.S. and foreign regulatory requirements.

If our competitors are more successful than we are in developing and deploying compelling products or in attracting and retaining users, advertisers, publishers, developers, or distributors, our revenue and growth rates could decline.

We generate the majority of our revenue from display and search advertising, and the reduction in spending by or loss of current or potential advertisers would cause our revenue and operating results to decline.

For both the three and six months ended June 30, 2013, 78 percent of our total revenue came from display and search advertising. Our ability to retain and grow display and search revenue depends upon:

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maintaining and growing our user base and popularity as an Internet destination site;

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maintaining the popularity of our existing products and introducing engaging new products;

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maintaining and expanding our advertiser base on PCs and mobile devices;

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broadening our relationships with advertisers to small- and medium-sized businesses;

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successfully implementing changes and improvements to our advertising management platforms and obtaining the acceptance of our advertising management platforms by advertisers, Website publishers, and online advertising networks;

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successfully acquiring, investing in, and implementing new technologies and strategic partnerships;

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successfully implementing changes in our sales force, sales development teams, and sales strategy;

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continuing to innovate and improve the monetization capabilities of our display advertising and mobile products;

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effectively monetizing mobile and other search queries;

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continuing to innovate and improve users’ search experiences;

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maintaining and expanding our Affiliate program for search and display advertising services; and

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deriving better demographic and other information about our users to enable us to offer better experiences to both our users and advertisers.

In most cases, our agreements with advertisers have a term of one year or less, and may be terminated at any time by the advertiser or by us. Search marketing agreements often have payments dependent upon usage or click-through levels. Accordingly, it is difficult to forecast display and search revenue accurately. In addition, our expense levels are based in part on expectations of future revenue, including occasional guaranteed minimum payments to our Affiliates in connection with search and/or display advertising, and are fixed over the short-term in some categories. The state of the global economy, growth rate of the online advertising market, and availability of capital has impacted and could further impact the advertising spending patterns of our existing and potential advertisers. Any reduction in spending by, or loss of, existing or potential advertisers would negatively impact our revenue and operating results. Further, we may be unable to adjust our expenses and capital expenditures quickly enough to compensate for any unexpected revenue shortfall.

If we do not manage our operating expenses effectively, our profitability could decline.

We plan to continue to manage costs to better and more efficiently manage our business. However, our operating expenses might increase from their reduced levels as we expand our operations in areas of desired growth, continue to develop and extend the Yahoo! brand, fund product development, build data centers or acquire real property, and acquire and integrate complementary businesses and technologies. Our operating costs might also increase if we do not effectively manage costs as we transition markets under the Search Agreement and reimbursements from Microsoft under the Search Agreement decline or cease. In addition, weak economic conditions or other factors could cause our business to contract, requiring us to implement cost cutting measures. If our expenses increase at a greater pace than our revenue, or if we fail to effectively manage costs, our profitability will decline.

If we are unable to provide innovative search experiences and other products and services that generate significant traffic to our Websites, our business could be harmed, causing our revenue to decline.

Internet search is characterized by rapidly changing technology, significant competition, evolving industry standards, and frequent product and service enhancements. We currently deploy our own technology to provide paid search results on our network, except in markets where we have transitioned those services to Microsoft’s platform. Even after we complete the transition to Microsoft’s platform in all markets, we will need to continue to invest and innovate to improve our users’ search experience to continue to attract, retain, and expand our user base and paid search advertiser base.

We also generate revenue through other online products and services, such as Yahoo! Mail, and continue to innovate the products and services that we offer. The research and development of new, technologically advanced products is a complex process that requires significant levels of innovation and investment, as well as accurate anticipation of technology, market and consumer trends. If we are unable to provide innovative products and services which generate significant traffic to our Websites, our business could be harmed, causing our revenue to decline.

Risks associated with our Search Agreement with Microsoft may adversely affect our business and operating results.

Under our Search Agreement with Microsoft, Microsoft is the exclusive algorithmic and paid search services provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites for the transitioned markets. Implementation of our Search Agreement with Microsoft commenced on February 23, 2010. We have completed the transition of our algorithmic search platform to the Microsoft platform in all markets, and have completed transition of paid search in several markets. We are continuing to work with Microsoft on transitioning paid search in the remaining markets. The market-by-market transition of our paid search platform to Microsoft’s platform and the migration of paid search advertisers and publishers to Microsoft’s platform are expected to continue through 2013, and possibly into 2014. The transition process is complex and requires the expenditure of significant time and resources by us. Delays, difficulties, disruptions or inconveniences resulting from the transition process could result in the loss of advertisers, publishers, Affiliates, and employees, as well as delays in recognizing or reductions in the anticipated benefits of the transaction, any of which could negatively impact our business and operating results.

Under the Search Agreement, Microsoft initially agreed to guarantee Yahoo!’s revenue per search (“RPS Guarantee”) on Yahoo! Properties for 18 months after the transition of paid search services to Microsoft’s platform in each market based on the difference in revenue per search between the pre-transition and post-transition periods and certain other factors. Paid search services in the U.S. and Canada transitioned to Microsoft’s platform in the fourth quarter of 2010, other markets followed and transitions are ongoing as described above. To date, there has been a gap in revenue per search between pre-transition and post-transition periods in most markets and the payments under the RPS Guarantee are to compensate for the difference. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013, and in the second quarter of 2013 Microsoft extended the RPS Guarantee in the U.S. through March 2014. In June 2013, Microsoft and Yahoo! agreed upon the RPS Guarantee payment amounts to be paid to us for the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013. We also agreed to fixed quarterly payments in lieu of the RPS Guarantee in the U.S. for the quarters ending September 30, 2013, December 31, 2013 and March 31, 2014. In addition, we agreed to waive our right to receive any future RPS Guarantee payments in all markets except Taiwan and Hong Kong.

To the extent the fixed quarterly payments and any RPS Guarantee payments we receive from Microsoft do not fully offset any shortfall relating to revenue per search in the transitioned markets, our search revenue and profitability would decline. Notwithstanding the fixed quarterly payments or any RPS Guarantee payments we may receive from Microsoft, our competitors may continue to increase revenue, profitability, and market share at a higher rate than we do.

More people are using devices other than a PC to access the Internet and are accessing new platforms to make search queries, and versions of our services developed for these devices might not gain widespread adoption by the devices’ users, manufacturers, or distributors or might fail to function as intended on some devices.

The number of people who access the Internet through devices other than a PC, including mobile telephones, smartphones, personal digital assistants, handheld computers such as tablets and netbooks, video game consoles, televisions, and set-top box devices has increased dramatically, and the trend is likely to continue. Our services were originally designed for rich, graphical environments such as those available on PCs. Limitations on the memory, resolution, functionality and display associated with many alternative devices may make the use of our products and services through such devices more difficult and versions of our products and services developed for those devices may not be compelling to users, manufacturers and distributors of alternative devices. Similarly, the licenses we have negotiated to present third-party content to PC users may not extend to users of alternative devices. In those cases, we may need to enter into new or amended agreements with the content providers in order to present a similar user-experience on the new devices. The content providers may not be willing to enter into such new or amended agreements on reasonable terms or at all. In addition, search queries are increasingly being undertaken via applications tailored to particular devices or social media platforms, which could affect our share of the search market over time.

As new devices and platforms are introduced, it is difficult to predict the problems we may encounter in adapting our services and developing creative new products and services. We expect to continue to devote significant resources to the creation, support, and maintenance of mobile products and services. If we are unable to successfully innovate new forms of Internet advertising for alternative devices, to attract and retain a substantial number of alternative device manufacturers, distributors, content providers, and users to our services, to develop products and technologies that are more compatible with alternative devices and platforms, or to earn adequate margins on revenues derived from these products and services, we will fail to capture opportunities as consumers and advertisers transition to a dynamic, multi-screen environment.

A key to our strategy is focusing on mobile devices. If we are unable to generate and grow our revenue on mobile or other alternative devices or incur excessive expenses attempting to attract such revenue, our financial condition and operating results could be harmed. If monetization stays at current levels and we see an increase in mobile search queries and deceleration of the growth of or decrease in desktop queries, our results may be adversely impacted.

To the extent that an access provider or device manufacturer enters into a distribution arrangement with one of our competitors, or as our competitors design, develop, or acquire control of alternative connected devices or their operating systems, we face an increased risk that our users will favor the services or properties of that competitor. The manufacturer or access provider might promote a competitor’s services or might impair users’ access to our services by blocking access through their devices or by not making our services available in a readily-discoverable manner on their devices. If competitive distributors impair access to our services, or if they simply are more successful than our distributors in developing compelling products that attract and retain users or advertisers, then our revenue could decline.

In the future, as new methods for accessing the Internet and our services become available, including through alternative devices, we may need to enter into amended distribution agreements with existing access providers, distributors, and manufacturers to cover the new devices and new arrangements. We face a risk that existing and potential new access providers, distributors, and manufacturers may decide not to offer distribution of our services on reasonable terms, or at all.

If we are unable to license or acquire compelling content and services at reasonable cost or if we do not develop or commission compelling content of our own, the number of users of our services may not grow as anticipated, or may decline, or users’ level of engagement with our services may decline, all or any of which could harm our operating results.

Our future success depends in part on our ability to aggregate compelling content and deliver that content through our online properties. We license from third parties much of the content and services on our online properties, such as news items, stock quotes, weather reports, music videos, music radio, and maps. We believe that users will increasingly demand high-quality content and services, including music videos, film clips, news footage, and special productions. We may need to make substantial payments to third parties from whom we license or acquire such content or services. Our ability to maintain and build relationships with such third-party providers is critical to our success. In addition, as new methods for accessing the Internet become available, including through alternative devices, we may need to enter into amended agreements with existing third-party providers to cover the new devices. We may be unable to enter into new, or preserve existing, relationships with the third-parties whose content or services we seek to obtain. In addition, as competition for compelling content increases both domestically and internationally, our third-party providers may increase the prices at which they offer their content and services to us, and potential providers may not offer their content or services to us at all, or may offer them on terms that are not agreeable to us. An increase in the prices charged to us by third-party providers could harm our operating results and financial condition. Further, because many of our content and services licenses with third parties are non-exclusive, other media providers may be able to offer similar or identical content. This increases the importance of our ability to deliver compelling editorial content and personalization of this content for users in order to differentiate Yahoo! from other businesses. If we are unable to license or acquire compelling content at reasonable cost, if other companies distribute content or services that are similar to or the same as that provided by us, or if we do not develop or commission compelling editorial content or personalization services, the number of users of our services may not grow as anticipated, or may decline, or users’ level of engagement with our services may decline, all or any of which could harm our operating results.

Our business depends on a strong brand, and failing to maintain or enhance the Yahoo! brands in a cost-effective manner could harm our operating results.

Maintaining and enhancing our brands is an important aspect of our efforts to attract and expand our user, advertiser, and Affiliate base. We believe that the importance of brand recognition will increase due to the relatively low barriers to entry in certain portions of the Internet market. Maintaining and enhancing our brands will depend largely on our ability to provide high-quality, innovative products and services, which we might not do successfully. We have spent and expect to spend considerable money and resources on the establishment and maintenance of our brands, as well as advertising, marketing, and other brand-building efforts to preserve and enhance consumer awareness of our brands. Our brands may be 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 software and services.

Further, while we attempt to ensure that the quality of our brands is maintained by our licensees, our licensees might take actions that could impair the value of our brands, our proprietary rights, or the reputation of our products and media properties. If we are unable to maintain or enhance our brands in a cost-effective manner, or if we incur excessive expenses in these efforts, our business, operating results and financial condition could be harmed.

Our intellectual property rights are valuable, and any failure or inability to sufficiently protect them could harm our business and our operating results.

We create, own, and maintain a wide array of copyrights, patents, trademarks, trade dress, trade secrets, rights to domain names and other intellectual property assets which we believe are collectively among our most valuable assets. We seek to protect our intellectual property assets through patent, copyright, trade secret, trademark, and other laws of the U.S. and other countries of the world, and through contractual provisions. However, the efforts we have taken to protect our intellectual property and proprietary rights might not be sufficient or effective at stopping unauthorized use of those rights. Protection of the distinctive elements of Yahoo! might not always be available under copyright law or trademark law, or we might not discover or determine the full extent of any unauthorized use of our copyrights and trademarks in order to protect our rights. In addition, effective trademark, patent, copyright, and trade secret protection might not be available or cost-effective in every country in which our products and media properties are distributed or made available through the Internet. Changes in patent law, such as changes in the law regarding patentable subject matter, could also impact our ability to obtain patent protection for our innovations. In particular, recent amendments to the U.S. patent law may affect our ability to protect our innovations and defend against claims of patent infringement. Further, given the costs of obtaining patent protection, we might choose not to protect (or not to protect in some jurisdictions) certain innovations that later turn out to be important. There is also a risk that the scope of protection under our patents may not be sufficient in some cases or that existing patents may be deemed invalid or unenforceable. To help maintain our trade secrets, we have entered into confidentiality agreements with most of our employees and contractors, and confidentiality agreements with many of the parties with whom we conduct business, in order to limit access to and disclosure of our proprietary information. If these confidentiality agreements are breached it could compromise our trade secrets and cause us to lose any competitive advantage provided by those trade secrets.

If we are unable to protect our proprietary rights from unauthorized use, the value of our intellectual property assets may be reduced. In addition, protecting our intellectual property and other proprietary rights is expensive and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and consequently harm our operating results.

We are regularly involved in claims, suits, government investigations, and other proceedings that may result in adverse outcomes.

We are regularly involved in claims, suits, government investigations, and proceedings arising from the ordinary course 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, stockholder derivative actions, purported class action lawsuits, and other matters. Such claims, suits, government investigations, and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management and other personnel, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in reputational harm, liability, penalties, or sanctions, as well as judgments, consent decrees, or orders preventing us from offering certain features, functionalities, products, or services, or requiring a change in our business practices, products or technologies, which could in the future materially and adversely affect our business, operating results, and financial condition. See Note 11—“Commitments and Contingencies” in the Notes to our condensed consolidated financial statements.

On May 15, 2013, the Superior Court of Justice for the Federal District of Mexico reversed a judgment of U.S. $2.75 billion that had been entered against us and our subsidiary, Yahoo! Mexico, in a lawsuit brought by plaintiffs Worldwide Directories S.A. de C.V. and Ideas Interactivas, S.A. de C.V. The plaintiffs have appealed. We believe the plaintiffs’ claims are without legal or factual merit. We do not believe that it is probable the judgment will be reinstated on appeal, however we cannot predict the timing of a decision or assure the ultimate outcome of the pending or further appeals. If we are ultimately required to pay all or a significant portion of the judgment, together with any potential additional damages, interests and costs, it would have a material adverse effect on our financial condition, results of operations and cash flows. We will also be required to record an accrual for the judgment if we should determine in the future that it is probable that we will be required to pay the judgment.

We are, and may in the future be, subject to intellectual property infringement or other third-party claims, which are costly to defend, could result in significant damage awards, and could limit our ability to provide certain content or use certain technologies in the future.

Internet, technology, media, and patent holding companies often possess a significant number of patents. Further, many of these companies and other parties are actively developing or purchasing search, indexing, electronic commerce, and other Internet-related technologies, as well as a variety of online business models and methods.

We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection. In addition, patent holding companies may continue to seek to monetize patents they have purchased or otherwise obtained. As a result, disputes regarding the ownership of technologies and rights associated with online businesses are likely to continue to arise in the future. From time to time, parties assert patent infringement claims against us. Currently, we are engaged in a number of lawsuits regarding patent issues and have been notified of a number of other potential disputes.

In addition to patent claims, third parties have asserted, and are likely in the future to assert, claims against us alleging infringement of copyrights, trademark rights, trade secret rights or other proprietary rights, or alleging unfair competition, violation of federal or state statutes or other claims, including alleged violation of international statutory and common law. In addition, third parties have made, and may continue 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 subject to intellectual property infringement and other claims, including those that may arise under international laws. In the event that there is a determination that we have infringed third-party proprietary rights such as patents, copyrights, trademark rights, trade secret rights, or other third-party rights such as publicity and privacy rights, we could incur substantial monetary liability, or be required to enter into costly royalty or licensing agreements or be prevented from using such rights, which could require us to change our business practices in the future, hinder us from offering certain features, functionalities, products or services, require us to develop non-infringing products or technologies, and limit our ability to compete effectively. We may also incur substantial expenses in defending against third-party claims regardless of the merit of such claims. In addition, many of our agreements with our customers or Affiliates require us to indemnify them for some types of third-party intellectual property infringement claims, which could increase our costs in defending such claims and our damages. Furthermore, such customers and Affiliates may discontinue the use of our products, services, and technologies either as a result of injunctions or otherwise. The occurrence of any of these results could harm our brands or have an adverse effect on our business, financial position, operating results, and cash flows.

A variety of new and existing U.S. and foreign government laws and regulations could subject us to claims, judgments, monetary liabilities and other remedies, and to limitations on our business practices.

We are subject to numerous U.S. and foreign laws and regulations covering a wide variety of subject matters. New laws and regulations, changes in existing laws and regulations or the interpretation of them, our introduction of new products, or an extension of our business into new areas, could increase our future compliance costs, make our products and services less attractive to our users, or cause us to change or limit our business practices. We may incur substantial expenses to comply with laws and regulations or defend against a claim that we have not complied with them. Further, any failure on our part to comply with any relevant laws or regulations may subject us to significant civil or criminal liabilities, penalties, and negative 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, content regulation, quality of services, law enforcement demands, telecommunications, mobile, television, and intellectual property ownership and infringement in many instances is unclear or unsettled. Further, the application to us or our subsidiaries of existing laws regulating or requiring licenses for certain businesses of our advertisers can be unclear. U.S. export control laws and regulations also impose requirements and restrictions on exports to certain nations and persons and on our business. Internationally, we may also be subject to laws regulating our activities in foreign countries and to foreign laws and regulations that are inconsistent from country to country.

The Digital Millennium Copyright Act (“DMCA”) is intended, in part, to limit the liability of eligible online service providers for caching, hosting, listing or linking to, third-party Websites or user content that include materials that give rise to copyright infringement. Portions of the Communications Decency Act (“CDA”) are intended to provide statutory protections to online service providers who distribute third-party content. We rely on the protections provided by both the DMCA and the CDA in conducting our business, and may be adversely impacted by future legislation and future judicial decisions altering these safe harbors or if international jurisdictions refuse to apply similar protections.

The Children’s Online Privacy Protection Act and rule, as amended in December 2012 (“COPPA”), impose restrictions on the ability of online services to collect some types of information from children under the age of 13. In addition, Providing Resources, Officers, and Technology to Eradicate Cyber Threats to Our Children Act of 2008 (“PROTECT”) requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. COPPA and PROTECT currently impose restrictions and requirements on our business, and other federal, state or international laws and legislative efforts designed to protect children on the Internet may impose additional requirements on us.

Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect 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 among federal, state, and international regulatory bodies, and the regulatory environment is unsettled. Many states have passed laws requiring notification to users where there is a security breach for personal data, such as California’s Information Practices Act. We face similar risks in international markets where our products and services are offered. Any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state, or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of user confidence, damage to the Yahoo! brands, and a loss of users, advertising partners, or Affiliates, any of which could potentially have an adverse effect on our business.

In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with users. The interpretation and application of privacy, data protection and data retention laws and regulations are often uncertain and in flux in the U.S. and internationally. These laws may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices, complicating long-range business planning decisions. If privacy, data protection or data retention laws are interpreted and applied in a manner that is inconsistent with our current policies and practices we may be fined or ordered to change our business practices in a manner that adversely impacts our operating results. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

If our security measures are breached, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.

Our products and services involve the storage and transmission of Yahoo!’s users’ and customers’ personal and proprietary information in our facilities and on our equipment, networks and corporate systems. Security breaches expose us to a risk of loss of this information, litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation, and

potential liability. Our user data and corporate systems and security measures have been and may in the future be breached due to the actions of outside parties (including cyber attacks), employee error, malfeasance, a combination of these, or otherwise, allowing an unauthorized party to obtain access to our data or our users’ or customers’ data. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data.

Any breach or unauthorized access could result in significant legal and financial exposure, increased remediation and other costs, damage to our reputation and a loss of confidence in the security of our products, services and networks that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers.

Interruptions, delays, or failures in the provision of our services could damage our reputation and harm our operating results.

Delays or disruptions to our service, or the loss or compromise of data, could result from a variety of causes, including the following:

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Our operations are susceptible to outages and interruptions due to fire, flood, earthquake, tsunami, other natural disasters, power loss, equipment or telecommunications failures, cyber attacks, terrorist attacks, political or social unrest, and other events over which we have little or no control. We do not have multiple site capacity for all of our services and some of our systems are not fully redundant in the event of delays or disruptions to service, so some data or systems may not be fully recoverable after such events.

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The systems through which we provide our products and services are highly technical, complex, and interdependent. 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.

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Despite our implementation of network security measures, our servers are vulnerable to computer viruses, worms, hacking, physical and electronic break-ins, router disruption, sabotage or espionage, and other disruptions from unauthorized access and tampering, as well as coordinated denial-of-service attacks. We may not be in a position to promptly address attacks or to implement adequate preventative measures if we are unable to immediately detect such attacks. Such events could result in large expenditures to investigate or remediate, to recover data, to repair or replace networks or information systems, including changes to security measures, to deploy additional personnel, to defend litigation or to protect against similar future events, and may cause damage to our reputation or loss of revenue.

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We rely on third-party providers over which we have little or no control for our principal Internet connections and co-location of a significant portion of our data servers, as well as for our payment processing capabilities and key components or features of certain of our products and services. Any disruption of the services they provide us or any failure of these third-party providers to handle higher volumes of use could, in turn, cause delays or disruptions in our services and loss of revenue. In addition, if our agreements with these third-party providers are terminated for any reason, we might not have a readily available alternative.

Prolonged delays or disruptions to our service could result in a loss of users, damage to our brands, legal costs or liability, and harm to our operating results.

Our international operations expose us to additional risks that could harm our business, operating results, and financial condition.

In addition to uncertainty about our ability to continue to generate revenue from our foreign operations and expand our international market position, there are additional risks inherent in doing business internationally (including through our international joint ventures), including:

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tariffs, trade barriers, customs classifications and changes in trade regulations;

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difficulties in developing, staffing, and simultaneously managing a large number of varying foreign operations as a result of distance, language, and cultural differences;

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stringent local labor laws and regulations;

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longer payment cycles;

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credit risk and higher levels of payment fraud;

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profit repatriation restrictions and foreign currency exchange restrictions;

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political or social unrest, economic instability, repression, or human rights issues;

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geopolitical events, including natural disasters, acts of war and terrorism;

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import or export regulations;

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compliance with U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting bribery and corrupt payments to government officials;

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antitrust and competition regulations;

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potentially adverse tax developments;

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seasonal volatility in business activity and local economic conditions;

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economic uncertainties relating to European sovereign and other debt;

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laws, regulations, licensing requirements, and business practices that favor local competitors or prohibit foreign ownership or investments;

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different, uncertain or more stringent user protection, content, data protection, privacy, intellectual property and other laws; and

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risks related to other government regulation, required compliance with local laws or lack of legal precedent.

We are subject to numerous and sometimes conflicting U.S. and foreign laws and regulations which increase our cost of doing business. Violations of these complex laws and regulations that apply to our international operations could result in damage awards, fines, criminal actions, sanctions, or penalties against us, our officers or our employees, prohibitions on the conduct of our business and our ability to offer products and services, and damage to our reputation. Although we have implemented policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors, or agents will not violate our policies. These risks inherent in our international operations and expansion increase 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 enable and encourage individuals and businesses to exchange information; upload or otherwise generate photos, videos, text, and other content; advertise products and services; conduct business; and engage in various online activities both domestically and internationally. The law relating to the liability of providers of online services and products for activities of their users is currently unsettled both within the U.S. and internationally. As a publisher and producer of original content, we may be subject to claims such as copyright, libel, defamation or improper use of publicity rights, as well as other infringement claims such as plagiarism. Claims have been threatened and brought against us for defamation, negligence, breaches of contract, plagiarism, copyright and trademark infringement, unfair competition, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information which we publish or to which we provide links or that may be posted online or generated by us or by third parties, including our users. In addition, we have been and may again in the future be subject to domestic or international actions alleging that certain content we have generated or third-party content that we have made available within our services violates laws in domestic and international jurisdictions. We arrange for the distribution of third-party advertisements to third-party publishers and advertising networks, and we offer third-party products, services, or content, such as stock quotes and trading information, under the Yahoo! brand or via distribution on Yahoo! Properties. We may be subject to claims concerning these products, services, or content by virtue of our involvement in marketing, branding, broadcasting, or providing access to them, even if we do not ourselves host, operate, provide, or provide access to these products, services, or content. While our agreements with respect to these products, services, and content may provide that we will be indemnified against such liabilities, the ability to receive such indemnification may be disputed, could result in substantial costs to enforce or defend, and depends on the financial resources of the other party to the agreement, and any amounts received might not be adequate to cover our liabilities or the costs associated with defense of such proceedings. Defense of any such actions could be costly and involve significant time and attention of our management and other resources, may result in monetary liabilities or penalties, and may require us to change our business in an adverse manner.

It is also possible that if any information provided directly by us contains errors or is otherwise wrongfully provided to users, third parties could make claims against us. For example, we offer Web-based e-mail services, which expose us to potential risks, such as liabilities or claims, by our users and third parties, resulting from unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail, alleged violations of policies, property interests, or privacy protections, including civil or criminal laws, or interruptions or delays in e-mail service. We may also face purported consumer class actions or state actions relating to our online services, including our fee-based services (particularly in connection with any decision to discontinue a fee-based service). In addition, our customers, third parties, or government entities may assert claims or actions against us if our online services or technologies are used to spread or facilitate malicious or harmful code or applications.

Investigating and defending these types of claims are expensive, even if the claims are without merit or do not ultimately result in liability, and could subject us to significant monetary liability or cause a change in business practices that could negatively impact our ability to compete.

Acquisitions and strategic investments could result in adverse impacts on our operations and in unanticipated liabilities.

We have acquired, and have made strategic investments in, a number of companies (including through joint ventures) in the past, and we expect to make additional acquisitions and strategic investments in the future. Such transactions may result in dilutive issuances of our equity securities, use of our cash resources, and incurrence of debt and amortization expenses related to intangible assets. Our acquisitions and strategic investments to date were accompanied by a number of risks, including:

•

the difficulty of assimilating the operations and personnel of acquired companies into our operations;

•

the potential disruption of our ongoing business and distraction of management;

•

the incurrence of additional operating losses and expenses of the businesses we acquired or in which we invested;

•

the difficulty of integrating acquired technology and rights into our services and unanticipated expenses related to such integration;

•

the failure to successfully further develop an acquired business or technology and any resulting impairment of amounts currently capitalized as intangible assets;

•

the failure of strategic investments to perform as expected;

•

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 have invested;

•

the impairment or loss of relationships with customers and partners of the companies we acquired or in which we invested or with our customers and partners as a result of the integration of acquired operations;

•

the impairment of relationships with, or failure to retain, employees of acquired companies or our existing employees as a result of integration of new personnel;

•

our lack of, or limitations on our, control over the operations of our joint venture companies;

•

the difficulty of integrating operations, systems, and controls as a result of cultural, regulatory, systems, and operational differences;

•

in the case of foreign acquisitions and investments, the impact of particular economic, tax, currency, political, legal and regulatory risks associated with specific countries; and

•

the impact of known potential liabilities or liabilities that may be unknown, including as a result of inadequate internal controls, associated with the companies we acquired or in which we invested.

We are likely to experience similar risks in connection with our future acquisitions and strategic investments. Our failure to be successful in addressing these risks or other problems encountered in connection with our past or future acquisitions and strategic investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business generally.

If we are unable to recruit, hire, motivate, and retain key personnel, we may not be able to execute our business plan.

Our business is dependent on our ability to recruit, hire, motivate, and retain talented, highly skilled personnel. Achieving this objective may be difficult due to many factors, including the intense competition for such highly skilled personnel in the San Francisco Bay Area and other metropolitan areas where our offices are located; fluctuations in global economic and industry conditions; competitors’ hiring practices; and the effectiveness of our compensation programs. If we do not succeed in retaining and motivating our existing key employees and in attracting new key personnel, we may be unable to meet our business plan and as a result, our revenue and profitability may decline.

Any failure to manage expansion and changes to our business could adversely affect our operating results.

If we are unable to effectively manage a large and geographically dispersed group of employees or to anticipate our future growth and personnel needs, our business may be adversely affected. As we expand our business, we must also expand and adapt our operational infrastructure. Our business relies on data systems, billing systems, and financial reporting and control systems, among others. All of these systems have become increasingly complex in the recent past due to the growing complexity of our business, acquisitions of new businesses with different systems, and increased regulation over controls and procedures. To manage our business in a cost-effective manner, we will need to continue to upgrade and improve our data systems, billing systems, and other operational and financial systems, procedures, and controls. In some cases, we are outsourcing administrative functions to lower-cost providers. These upgrades, improvements and outsourcing changes will require a dedication of resources and in some cases are likely to be complex. If we are unable to adapt our systems and put adequate controls in place in a timely manner, our business may be adversely affected. In particular, sustained failures of our billing systems to accommodate increasing numbers of transactions, to accurately bill users and advertisers, or to accurately compensate Affiliates could adversely affect the viability of our business model.

Any failure to scale and adapt our existing technology architecture to manage expansion of user-facing 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 the world. We expect our products and services to continue to expand and change significantly and rapidly in the future to accommodate new technologies and Internet advertising solutions, and new means of content delivery.

In addition, widespread adoption of new Internet, networking or telecommunications technologies, or other technological changes, could require substantial expenditures to modify or adapt our services or infrastructure. The technology architectures and platforms utilized for our services are highly complex and may not provide satisfactory security features or support in the future, as usage increases and products and services expand, change, and become more complex. In the future, we may make additional changes to our existing, or move to completely new, architectures, platforms and systems, or our users may increasingly access our sites through devices that compel us to invest in new architectures, platforms and systems. Such changes may be technologically challenging to develop and implement, may take time to test and deploy, may cause us to incur substantial costs or data loss, and may cause changes, delays or interruptions in service. These changes, delays, or interruptions in our service may cause our users, Affiliates and other advertising platform participants to become dissatisfied with our service or to move to competing providers or seek remedial actions or compensation. Further, to the extent that demands for our services increase, we will need to expand our infrastructure, including the capacity of our hardware servers and the sophistication of our software. This expansion is likely to be expensive and complex and require additional technical expertise. As we acquire users who rely upon us for a wide variety of services, it becomes more technologically complex and costly to retrieve, store, and integrate data that will enable us to track each user’s preferences. Any difficulties experienced in adapting our architectures, platforms and infrastructure to accommodate increased traffic, to store user data, and track user preferences, together with the associated costs and potential loss of traffic, could harm our operating results, cash flows from operations, and financial condition.

We rely on third parties to provide the technologies necessary to deliver content, advertising, and services to our users, and any change in the licensing terms, costs, availability, or acceptance of these formats and technologies could adversely affect our business.

We rely on third parties to provide the technologies that we use to deliver content, advertising, and services to our users. There can be no assurance that these providers will continue to license their technologies or intellectual property to us on reasonable terms, or at all. Providers may change the fees they charge users or otherwise change their business model in a manner that slows the widespread acceptance of their technologies. In order for our services to be successful, there must be a large base of users of the technologies necessary to deliver our content, advertising, and services. We have limited or no control over the availability or acceptance of those technologies, and any change in the licensing terms, costs, availability, or user acceptance of these technologies could adversely affect our business.

If we are unable to attract, sustain, and renew distribution arrangements on favorable terms, our revenue may decline.

We enter into distribution arrangements with third parties such as operators 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 integrate our advertising offerings into their Websites.

•

We enter into distribution alliances with Internet service providers (including providers of cable and broadband Internet access) and software distributors to promote our services to their users.

•

We enter into agreements with mobile, tablet, netbook, television, and other device manufacturers, electronics companies and carriers to promote our software and services on their devices.

In some markets, we depend on a limited number of distribution arrangements for a significant percentage of our user activity. A failure by our distributors to attract or retain their user bases would negatively impact our user activity and, in turn, reduce our revenue. In some cases, device manufacturers may be unwilling to pay fees to Yahoo! in order to distribute Yahoo! services.

Distribution agreements often involve revenue sharing. Over time competition to enter into distribution arrangements may cause our traffic acquisition costs to increase. In some cases, we guarantee distributors a minimum level of revenue and, as a result, run a risk that the distributors’ performance (in terms of ad impressions, toolbar installations, etc.) might not be sufficient to otherwise earn their minimum payments. In other cases, we agree that if the distributor does not realize specified minimum revenue we will adjust the distributor’s revenue-share percentage or provide make-whole arrangements.

Some of our distribution agreements are not exclusive, have a short term, are terminable at will, or are subject to early termination provisions. The loss of distributors, increased distribution costs, or the renewal of distribution agreements on significantly less favorable terms may cause our revenue to decline.

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, which could harm our operating results.

Technologies, tools, software, and applications (including new and enhanced Web browsers) have been developed and are likely to continue to be developed that can block display, search, and interest-based advertising and content, delete or block the cookies used to deliver such advertising, or shift the location in which advertising appears on pages so that our advertisements do not show up in the most monetizable places on our pages or are obscured. Most of our revenue is derived from fees paid by advertisers in connection with the display of graphical advertisements or clicks on search advertisements on Web pages. As a result, the adoption of such technologies, tools, software, and applications could reduce the number of display and search advertisements that we are able to deliver and/or our ability to deliver interest-based advertising and this, in turn, could reduce our advertising revenue and operating results.

Proprietary document formats may limit the effectiveness of our search technology by preventing our technology from accessing the content of documents in such formats, which could limit the effectiveness of our products and services.

A large amount of information on the Internet is provided in proprietary document formats. These proprietary document formats may limit the effectiveness of search technology by preventing the technology from accessing the content of such documents. The providers of the software applications used to create these documents could engineer the document format to prevent or interfere with the process of indexing the document contents with search technology. This would mean that the document contents would not be included in search results even if the contents were directly relevant to a search. The software providers may also seek to require us to pay them royalties in exchange for giving us the ability to search documents in their format. If the search platform technology we employ is unable to index proprietary format Web documents as effectively as our competitors’ technology, usage of our search services might decline, which could cause our revenue to fall.

We have dedicated considerable resources to provide a variety of premium products and services, 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 for these technologies are long and generally require significant investment by us. We have invested and will continue to invest in premium products and services. Some of these premium products and services might not generate anticipated revenue or might not meet anticipated user adoption rates. We have previously discontinued some non-profitable premium services and may discontinue others. General economic conditions as well as the rapidly evolving competitive landscape may affect users’ willingness to pay for such premium services. If we cannot generate revenue from our premium services that are greater than the cost of providing such services, our operating results could be harmed.

Fluctuations in foreign currency exchange rates may adversely affect our operating results and financial condition.

Revenue generated and expenses incurred by our international subsidiaries and equity method investees are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries and equity method investees are translated from local currencies into U.S. dollars. Our financial results are also subject to changes in exchange rates that impact the settlement of transactions in non-local currencies. The carrying values of our equity investments in our equity investees are also subject to fluctuations in the exchange rates of foreign currencies.

We use derivative instruments, such as foreign currency forward contracts, to partially offset certain exposures to fluctuations in foreign currency exchange rates. The use of such instruments may not offset any, or more than a portion, of the adverse financial effects of unfavorable 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. See Part I, Item 3—“Quantitative and Qualitative Disclosures About Market Risk” of this Quarterly Report.

We may be required to record a significant charge to earnings if our goodwill, amortizable intangible assets, investments in equity interests, including investments held by our equity method investees, or other investments become impaired.

We are required under generally accepted accounting principles to test goodwill for impairment at least annually and to review our amortizable intangible assets and investments in equity interests, including investments held by our equity method investees, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill and amortizable intangible assets include significant adverse changes in the business climate (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business. Factors that could lead to impairment of investments in equity interests include a prolonged period of decline in the stock price or operating performance of, or an announcement of adverse changes or events by, the companies in which we invested or the investments held by those companies. Factors that could lead to an impairment of U.S. government securities, which constitute a significant portion of our assets, include any downgrade of U.S. government debt or concern about the creditworthiness of the U.S. government. We have recorded and may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets, investments in equity interests, including investments held by our equity investees, or other investments become impaired. Any such charge would adversely impact our financial results.

We may have exposure to additional tax liabilities which could negatively impact our income tax provision, net income, and cash flow.

We are subject to income taxes and other taxes in both the U.S. and the foreign jurisdictions in which we currently operate or have historically operated. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We earn a material amount of our operating income from outside the U.S., and any repatriation of funds in foreign jurisdictions to the U.S. may result in higher effective tax rates for us. As a U.S. multinational corporation, we are subject to changing tax laws both within and outside of the U.S. We cannot predict the form or timing of potential legislative changes, but any newly enacted tax law could have a material adverse impact on our tax expense and cash flow. We are subject to regular review and audit by both domestic and foreign tax authorities as well as subject to the prospective and retrospective effects of changing tax regulations and legislation. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income, or cash flows in the period or periods for which such determination and settlement is made.

Adverse macroeconomic conditions could cause decreases or delays in spending by our advertisers and could harm our ability to generate revenue and our results of operations.

Advertising expenditures tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Since we derive most of our revenue from advertising, adverse macroeconomic conditions have caused, and future adverse macroeconomic conditions could cause, decreases or delays in advertising spending and negatively impact our advertising revenue and short-term ability to grow our revenue. Further, any decreased collectability of accounts receivable or early termination of agreements, whether resulting from customer bankruptcies or otherwise due to adverse macroeconomic conditions, could negatively impact our results of operations.

Our stock price has been volatile historically and may continue to be volatile regardless of our operating performance.

The trading price of our common stock has been and may continue to be subject to broad fluctuations. During the three months ended June 30, 2013, the closing sale price of our common stock on the NASDAQ Global Select Market ranged from $23.26 to $27.34 per share and the closing sale price on July 31, 2013 was $28.09 per share. Our stock price may fluctuate in response to a number of events and factors, such as variations in quarterly operating results or announcements of technological innovations, significant transactions, or new features, products or services by us or our competitors; changes in financial estimates and recommendations by securities analysts; the operating and stock price performance of, or other developments involving, other companies that investors may deem comparable to us; trends in our industry; general economic conditions; and the current and anticipated future operating performance and equity valuation of Alibaba Group and Yahoo Japan Corporation in which we have equity investments, including changes in equity valuation due to fluctuations in foreign currency exchange rates.

In addition, the stock market in general, and the market prices for companies in our industry, have experienced volatility that often has been unrelated to operating performance. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees who have been granted stock options or other stock-based awards. A sustained decline in our stock price and market capitalization could lead to an impairment charge to our long-lived assets.

Delaware statutes and certain provisions in our charter documents could make it more difficult for a third-party to acquire us.

Our Board has the authority to issue up to 10 million shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deterring or preventing a change in control of Yahoo! without further action by the stockholders and may adversely affect the voting and other rights of the holders of our common stock.

Some provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or changes in our management, which could have an adverse effect on the market price of our stock. In addition, our charter documents do not permit cumulative voting, which may make it more difficult for a third-party to gain control of our Board. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change in control of us.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Recent Issuances of Unregistered Securities

On June 19, 2013, as part of the closing of the Tumblr acquisition, the Company issued 1,566,630 shares of Yahoo! common stock to Tumblr’s founder in a private placement under Section 4(2) of the Securities Act of 1933, as amended, in exchange for shares of Tumblr common stock valued at $40 million under the merger agreement. The Yahoo! shares will be held by Yahoo! and released to Tumblr’s founder over four years from the closing provided he remains an employee of Yahoo! or one of its subsidiaries.

Repurchases of Equity Securities

Share repurchase activity during the three months ended June 30, 2013 was as follows:


Period	Total Number of Shares Purchased (*)		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in 000s) (*)
April 1 — April 30, 2013		3,200,000	$	23.86		3,200,000	$	2,586,074
May 1 — May 31, 2013		2,500,000	$	26.17		2,500,000	$	2,520,658
June 1 — June 30, 2013		19,644,100	$	26.01		19,644,100	$	2,009,681

Total		25,344,100	$	25.76		25,344,100

^(*)

The share repurchases in the three months ended June 30, 2013 were made under our stock repurchase program announced in May 2012, which authorizes the repurchase of up to $5 billion of our outstanding shares of common stock from time to time. This program, according to its terms, will expire in June 2015 unless revoked earlier by the Board. Repurchases under this program may take place in open market or privately negotiated transactions, including structured and derivative transactions such as accelerated share repurchase transactions, and may be made under a Rule 10b5-1 plan.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

The exhibits listed in the Index to Exhibits (following the signatures page of this Report) are filed with, or incorporated by reference in, this Report.

SIGNATURES

Pursuant to the requirements 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.


	YAHOO! INC.

Dated: August 8, 2013	By:	/s/ MARISSA A. MAYER
		Marissa A. Mayer Chief Executive Officer (Principal Executive Officer)

Dated: August 8, 2013	By:	/s/ KEN GOLDMAN
		Ken Goldman Chief Financial Officer (Principal Financial Officer)

YAHOO! INC.

Index to Exhibits


Exhibit Number		Description

3.1(A)		Amended and Restated Certificate of Incorporation of the Registrant (previously filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed July 28, 2000 and incorporated herein by reference).

3.1(B)		Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant (previously filed as Exhibit 4.8 to the Registrant’s Quarterly Report on Form 10-Q filed May 4, 2001 and incorporated herein by reference).

3.2		Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K/A filed December 20, 2010 and incorporated herein by reference).

10.2(B)+*		Form of Stock Option Agreement, including Notice of Grant, under the Yahoo! Inc. 1995 Stock Plan.

10.2(C)+*		Form of Stock Option Agreement for Executives, including Notice of Grant, under the Yahoo! Inc. 1995 Stock Plan.

10.2(D)+*		Form of Restricted Stock Unit Award Agreement, including Notice of Grant, under the Yahoo! Inc. 1995 Stock Plan.

10.2(E)+*		Form of Restricted Stock Unit Award Agreement for Executives, including Notice of Grant, under the Yahoo! Inc. 1995 Stock Plan.

10.15(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.

10.25(B)+*		Letter Agreement, dated July 26, 2013, between the Registrant and David Dibble.

10.27(A)+*		Employment Offer Letter, dated June 15, 2012, between the Registrant and Michael Barrett.

10.27(B)+*		Separation Agreement, dated October 25, 2012, between the Registrant and Michael Barrett.

10.28(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 Master Fund L.P., Third Point Ultra Master Fund L.P. and Third Point Reinsurance Company, Ltd. (previously filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on July 25, 2013 and incorporated herein by reference).

10.28(B)		Amendment to Agreement, dated July 22, 2013, between the Registrant, Third Point, LLC and each of the other persons set forth on the signature pages thereto (previously filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on July 25, 2013 and incorporated herein by reference).

31.1*		Certificate of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2013.

31.2*		Certificate of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2013.

32*		Certificate of Chief Executive Officer and Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(b) and 15d-14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 8, 2013.

101.INS*		XBRL Instance

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation

101.DEF*		XBRL Taxonomy Extension Definition

101.LAB*		XBRL Taxonomy Extension Labels

101.PRE*		XBRL Taxonomy Extension Presentation

*	Filed herewith.

+	Indicates a management contract or compensatory plan or arrangement.

†	Portions of this exhibit have been omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment.

EX-10.2(B)

Exhibit 10.2(B)

YAHOO! INC.

NOTICE OF STOCK OPTION GRANT

[optionee name]

[employee ID]

[address]

You have been granted an option to purchase Common Stock of Yahoo! Inc., a Delaware corporation (the “Company”), as follows:


Date of Grant:		[Date]

Exercise Price per Share:		$[dollars.cents]

Total Number of Shares Granted:		[share number]

Total Price of Shares Granted:		$[dollars.cents]

Type of Option:		U.S. Employee Nonstatutory Stock Option

Vesting Commencement Date		[Date]

Vesting Schedule:


Shares	Description	Vest Date
[#]	[On vest date]	[Date]
[#]	[Daily*]	[Date]
[#]	[Monthly*]	[Date]
[#]	[Quarterly*]	[Date]
[#]	[Semi-Annually*]	[Date]
[#]	[Annually*]	[Date]
[#]		[Date]
[#]		[Date]
[#]		[Date]
[#]		[Date]

The shares shown on this line are scheduled to vest in a series of smaller installments, with the indicated frequency, after the vest date in the prior line (or, if none, the vesting commencement date) through and including the vest date in this line. See the Stock Option Agreement linked below for further details.]


		[INSERT IF APPLICABLE: This ‘front loaded’ grant represents [#] years of annual awards.]

Expiration Date:		[Date]

Post-Termination Exercise Period:		This option may be exercised for a period of ninety (90) days after termination of your employment relationship except as set forth in the Stock Option Agreement (but in no event later than the Expiration Date set forth above). You understand and agree that termination of your employment relationship for purposes of this option shall occur on the Termination Date (as defined in the Stock Option Agreement).

Governing Documents:

Stock Option Agreement for U.S. Employees

1995 Stock Plan (the “Plan”)

By your acceptance of this award through the Company’s online acceptance procedure (or by your signature and the signature of the Company’s representative below):

•

you acknowledge receiving and reviewing the Governing Documents (listed above) and the Supplemental Documents (listed below);

•

you agree that this award is granted under and governed by the terms and conditions of the Governing Documents and you agree to be bound by the terms of this Notice of Stock Option Grant and the Governing Documents, all of which are hereby incorporated by reference into this Notice of Stock Option Grant; and

•

you consent to the collection, use and transfer, in electronic or other form, of your personal data as described in the Governing Documents for the purpose of implementing, administering and managing your participation in the Plan.

This Notice of Stock Option Grant shall be construed and determined in accordance with the laws of the U.S. State of Delaware (without giving effect to the conflict of laws principles thereof) and shall be deemed to have been executed and delivered by the parties hereto as of the Date of Grant.


OPTIONEE:	YAHOO! INC.

[Click Here to Accept]	By:	/s/ Marissa A. Mayer

Signature		Marissa A. Mayer

[optionee name]	Title:	Chief Executive Officer
Name

Supplemental Documents:	U.S. Prospectus
	Insider Trading Policy

YAHOO! INC.

1995 STOCK PLAN

STOCK OPTION AGREEMENT

FOR U.S. EMPLOYEES

Grant of Option. Yahoo! Inc., a Delaware corporation (the “Company”), hereby grants to the optionee (the “Optionee”) named in the Notice of Stock Option Grant (the “Notice of Grant”), an option (the “Option”) to purchase the total number of shares of Common Stock (the “Shares”) set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”) subject to the terms, definitions and provisions of the Yahoo! Inc. 1995 Stock Plan, as amended (the “Plan”), adopted by the Company, which is incorporated in this Stock Option Agreement for U.S. Employees (this “Agreement”) by reference. In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall govern. Unless otherwise defined in this Agreement, the terms used in this Agreement shall have the definitions set forth in the Plan.

If designated as an Incentive Stock Option in the Notice of Grant, this Option is intended to qualify as an “incentive stock option” as such term is defined in Section 422 of the Code.

2.	Exercise of Option. This Option shall be exercisable during its term, in whole or in part, in accordance with the Vesting Schedule set forth in the Notice of Grant (the “Vesting Schedule”), this Section 2 and the provisions of Sections 9 and 10 of the Plan as follows:

(i)

Right to Exercise.

(a)

Subject to the earlier termination or expiration of the Option as provided in Section 2(i)(c) or (d) below:

(I)

The description “on vest date” in a Vesting Schedule line indicates that the Option shall become exercisable with respect to the number of Shares set forth in such line on the vest date set forth in such line.

(II)

The description “daily,” “monthly,” “quarterly,” “semi-annually” or “annually” in a Vesting Schedule line indicates that the Option shall become exercisable with respect to the corresponding number of Shares set forth in such line on a daily, monthly, quarterly, semi-annual or annual (as applicable) schedule. In such event, the first vesting installment shall occur on the applicable anniversary (daily, monthly, quarterly, semi-annual or annual, as applicable) of the vest date in the prior line (or, if none, on the applicable anniversary of the vesting commencement date set forth in the Notice of Grant (the “Vesting Commencement Date”)) and vesting installments shall continue to occur on subsequent applicable anniversaries of that date until the option to purchase the full number of Shares set forth in such line is fully vested on the vest


Stock Option Agreement for U.S. Employees (May 2013)		1

date set forth in such line. The number of Shares covered by each such vesting installment shall equal the quotient of (A) the total number of Shares set forth in such line divided by (B) the total number of such anniversaries scheduled to occur from the vest date in the prior line (or, if none, from the Vesting Commencement Date) through and including the vest date in such line; provided that fractional shares shall not vest but shall accumulate.

The date on which any portion of the Option is scheduled to vest pursuant to this Section 2(i)(a) (or otherwise pursuant to this Agreement or the Plan) is referred to as a “vesting date.”

(b)

This Option may not be exercised for a fraction of a share.

(c)

If the Optionee takes an authorized leave of absence, or in the event of the Optionee’s death, disability or other termination of employment, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitation contained in Sections 2(i)(d) and (e).

(d)

In no event may this Option be exercised after the expiration date set forth in the Notice of Grant.

(e)

If designated as an Incentive Stock Option in the Notice of Grant, in the event that this Option becomes exercisable at a time or times which, when this Option is aggregated with all other incentive stock options granted to the Optionee by the Company or any Parent or Subsidiary, would result in shares having an aggregate fair market value (determined for each share as of the date of grant of the option covering such share) in excess of $100,000 becoming first available for purchase upon exercise of one or more incentive stock options during any calendar year, the amount in excess of $100,000 shall be treated as a Nonstatutory Stock Option, pursuant to Section 5(b) of the Plan.

(ii)

Method of Exercise.

(a)

This Option shall be exercisable by delivering notice to the Company or a broker designated by the Company in such form and through such delivery method as shall be acceptable to the Company or the designated broker, as appropriate (the “Exercise Notice”). The Exercise Notice shall specify the election to exercise the Option and the number of Shares in respect of which the Option is being exercised, shall include such other representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan and applicable law, and shall be accompanied by payment of the aggregate Exercise Price for the Shares in respect of which the Option is being exercised and any applicable tax withholding under Section 14 below. This Option shall be deemed to be exercised upon receipt by the Company or the designated broker of such Exercise Notice accompanied by such payment.


Stock Option Agreement for U.S. Employees (May 2013)		2

(b)

As a condition to the exercise of this Option, the Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of the Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise.

(c)

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any Stock Exchange. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

Continuance of Employment/Service Required. The Vesting Schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Option and the rights and benefits under this Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Optionee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Sections 6, 7 and 8 below or under the Plan.

Method of Payment. Payment of the Exercise Price shall be by any of, or a combination of, the following methods at the election of the Optionee: (i) cash; (ii) check; (iii) surrender of other shares of Common Stock of the Company which (a) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Optionee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (b) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which this Option shall be exercised; or (iv) delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the Exercise Price; provided that the Administrator may from time to time limit the availability of any non-cash payment alternative.

Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations (“Regulation G”) as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

6.	Termination of Relationship; Leaves of Absence.

(i)


Stock Option Agreement for U.S. Employees (May 2013)		3

exercise this Option during the Post Termination Exercise Period set forth in the Notice of Grant. To the extent that the Optionee was not entitled to exercise this Option at the date of such termination, or if the Optionee does not exercise this Option within the time specified in the Notice of Grant, the Option shall terminate. Further, to the extent allowed by applicable law, if the Optionee is indebted to the Company on the date of termination, the Optionee’s right to exercise this Option shall be suspended until such time as the Optionee satisfies in full any such indebtedness.

(ii)

Leaves of Absence. Unless otherwise expressly provided in a Company leave of absence vesting policy approved by the Administrator or otherwise by the Administrator, and subject to compliance with all applicable laws relating to the Optionee’s employment by the Company, Parent or Subsidiary (as applicable), in the event the Optionee takes an authorized leave of absence from the Company, Parent or Subsidiary (as applicable), each vesting date specified in the vesting schedule set forth in the Notice of Grant that has not occurred as of the commencement of such leave of absence shall be tolled for the number of calendar days that the Optionee is on such leave of absence, beginning with the commencement date of such leave of absence, but not beyond the expiration date set forth in the Notice of Grant. (For example, if the scheduled vesting date is January 1, 2014 and, prior to that date the Optionee commences a leave of absence spanning 365 calendar days, the vesting date shall (unless otherwise expressly provided in a Company leave of absence policy approved by the Administrator or otherwise by the Administrator) be tolled for 365 days and shall become January 1, 2015.)

Disability of Optionee. Notwithstanding the provisions of Section 6 above, in the event of termination of the Optionee’s Continuous Status as an Employee or Consultant as a result of Total Disability, the Optionee may, but only within twelve (12) months from the date of termination of employment (but in no event later than the expiration date set forth in the Notice of Grant), exercise the Option to the extent otherwise so entitled at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate.

Death of Optionee. In the event of the death of the Optionee during the period of the Optionee’s Continuous Status as an Employee or Consultant, or within thirty (30) days following the termination of the Optionee’s Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within twelve (12) months following the date of the Optionee’s death (but in no event later than the expiration date set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee was entitled to exercise the Option at the date of death or, if earlier, the date of termination of the Optionee’s Continuous Status as an Employee or Consultant. To the extent that the Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if the Optionee’s estate or the person who acquired the right to exercise the Option by bequest or inheritance does not exercise such Option (to


Stock Option Agreement for U.S. Employees (May 2013)		4

the extent otherwise so entitled) within the time specified in this Agreement, the Option shall terminate.

Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution. The designation of a beneficiary does not constitute a transfer. This Option may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

10.	Term of Option. This Option may not be exercised after the expiration date set forth in the Notice of Grant, and may be exercised on or prior to such date only in accordance with the Plan and the terms of this Option.

11.

No Right to Continued Employment. The Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule and Section 2 above is earned only by continuing as an Employee or Consultant at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). The Optionee further acknowledges and agrees that nothing in this Agreement, nor in the Plan which is incorporated in this Agreement by reference, shall confer upon the Optionee any right with respect to continuation as an Employee or Consultant with the Company, a Parent, or any Subsidiary, nor shall it interfere with or restrict in any way the right of the Company, a Parent or any Subsidiary, which is hereby expressly reserved, to remove, terminate or discharge the Optionee at any time for any reason whatsoever, with or without cause and with or without advance notice.

12.

Notice of Disqualifying Disposition of Incentive Stock Option Shares. If the Option granted to the Optionee in this Agreement is an Incentive Stock Option, and if the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the date of grant specified in the Notice of Grant (the “Date of Grant”), or (ii) the date one year after transfer of such Shares to the Optionee upon exercise of the Incentive Stock Option, the Optionee shall notify the Company in writing within thirty (30) days after the date of any such disposition. The Optionee agrees that the Optionee may be subject to the tax withholding provisions of Section 14 below in connection with such sale or disposition of such Shares.

13.

No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan, or the Optionee’s acquisition or sale of the underlying Shares. The Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.


Stock Option Agreement for U.S. Employees (May 2013)		5

14.

Tax Withholding. The Optionee shall pay to the Company promptly upon request, and in any event at the time the Optionee recognizes taxable income in respect of the Option, an amount equal to the taxes the Company determines it or the Optionee’s employer is required to withhold under applicable tax laws with respect to the Option. Such payment may be made by any of, or a combination of, the following methods: (i) cash or check; (ii) out of the Optionee’s current compensation; (iii) by surrender of other shares of Common Stock of the Company which (a) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Optionee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (b) have a Fair Market Value on the date of surrender equal to the amount required to be withheld; (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld or (v) by delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the amount required to be withheld; provided that the Administrator may from time to time limit the availability of any non-cash payment alternative. For these purposes, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the “Tax Date”).

All elections by the Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions:

(i)

the election must be made on or prior to the applicable Tax Date;

(ii)

once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made;

(iii)

all elections shall be subject to the consent or disapproval of the Administrator; and

(iv)

if the Optionee is subject to Section 16 of the Exchange Act, the election must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

15.

Notices. Any and all notices, designations, consents, offers, acceptances and any other communications provided for herein shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed, in the case of the Company to both the Chief Financial Officer and the General Counsel of the Company at the principal office of the Company and, in the case of the Optionee, to the Optionee’s address appearing on the books of the Company or to the Optionee’s residence or to such other address as may be designated in writing by the Optionee. Notices may also be delivered to the Optionee, during his or her employment, through the Company’s inter-office or electronic mail systems.


Stock Option Agreement for U.S. Employees (May 2013)		6

16.	Bound by Plan. By signing this Agreement, the Optionee acknowledges that he/she has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

17.	Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of the Optionee and the beneficiaries, executors, administrators, heirs and successors of the Optionee.

18.	Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.

19.	Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

20.	Governing Law/Choice of Venue.

(i)

This Agreement and the rights of the Optionee hereunder shall be construed and determined in accordance with the laws of the State of Delaware (without giving effect to the conflict of laws principles thereof), as provided in the Plan.

(ii)

For the purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Option grant or this Agreement, the parties hereby submit and consent to the exclusive jurisdiction of the State of California where this grant is made and/or to be performed and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal court of the United States for the Northern District of California, and no other courts.

21.

Imposition of Other Requirements. If the Optionee relocates to another country after the Date of Grant, the Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

22.	Recoupment. Notwithstanding any other provision herein, the recoupment or “clawback” policies adopted by the Administrator and applicable to equity awards, as such policies are in effect from time to time, shall apply to the Option and any Shares that may be issued in respect of the Option.

23.	Entire Agreement. This Agreement, the Notice of Grant and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

24.	Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.


Stock Option Agreement for U.S. Employees (May 2013)		7

25.	Signature. This Agreement shall be deemed executed by the Company and the Optionee as of the Date of Grant upon execution by such parties (or upon the Optionee’s online acceptance) of the Notice of Grant.


Stock Option Agreement for U.S. Employees (May 2013)		8

EX-10.2(C)

Exhibit 10.2(C)

YAHOO! INC.

NOTICE OF STOCK OPTION GRANT

[optionee name]

[employee ID]

[address]

You have been granted an option to purchase Common Stock of Yahoo! Inc., a Delaware corporation (the “Company”), as follows:


Date of Grant:		[Date]

Exercise Price per Share:		$[dollars.cents]

Total Number of Shares Granted:		[share number]

Total Price of Shares Granted:		$[dollars.cents]

Type of Option:		U.S. Executive Nonstatutory Stock Option

Vesting Commencement Date		[Date]

Vesting Schedule:


Shares	Description	Vest Date
[#]	[On vest date]	[Date]
[#]	[Daily*]	[Date]
[#]	[Monthly*]	[Date]
[#]	[Quarterly*]	[Date]
[#]	[Semi-Annually*]	[Date]
[#]	[Annually*]	[Date]
[#]		[Date]
[#]		[Date]
[#]		[Date]
[#]		[Date]


		[INSERT IF APPLICABLE: This ‘front loaded’ grant represents [#] years of annual awards.]

Expiration Date:		[Date]

Post-Termination Exercise Period:		This option may be exercised for a period of ninety (90) days after termination of your employment relationship except as set forth in the Stock Option Agreement (but in no event later than the Expiration Date set forth above). You understand and agree that termination of your employment relationship for purposes of this option shall occur on the Termination Date (as defined in the Stock Option Agreement).

Governing Documents:

Stock Option Agreement for U.S. Executives

1995 Stock Plan (the “Plan”)

By your acceptance of this award through the Company’s online acceptance procedure (or by your signature and the signature of the Company’s representative below):

•

you acknowledge receiving and reviewing the Governing Documents (listed above) and the Supplemental Documents (listed below);

•


OPTIONEE:	YAHOO! INC.

[Click Here to Accept]	By:	/s/ Marissa A. Mayer

Signature		Marissa A. Mayer

[optionee name]	Title:	Chief Executive Officer
Name

Supplemental Documents:	U.S. Prospectus
	Insider Trading Policy

YAHOO! INC.

1995 STOCK PLAN

STOCK OPTION AGREEMENT

FOR U.S. EXECUTIVES

Grant of Option. Yahoo! Inc., a Delaware corporation (the “Company”), hereby grants to the optionee (the “Optionee”) named in the Notice of Stock Option Grant (the “Notice of Grant”), an option (the “Option”) to purchase the total number of shares of Common Stock (the “Shares”) set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”) subject to the terms, definitions and provisions of the Yahoo! Inc. 1995 Stock Plan, as amended (the “Plan”), adopted by the Company, which is incorporated in this Stock Option Agreement for Executives (this “Agreement”) by reference. In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall govern. Unless otherwise defined in this Agreement, capitalized terms used in this Agreement shall have the definitions set forth in the Plan.

If designated as an Incentive Stock Option in the Notice of Grant, this Option is intended to qualify as an “incentive stock option” as such term is defined in Section 422 of the Code.

2.	Exercise of Option. This Option shall be exercisable during its term in accordance with the vesting schedule set forth in the Notice of Grant (the “Vesting Schedule”), this Section 2 and the provisions of Sections 9 and 10 of the Plan as follows:

(i)

Right to Exercise.

(a)

Subject to the earlier termination or expiration of the Option as provided in Section 2(i)(c) or (d) below:

(I)

(II)


Stock Option Agreement for U.S. Executives (May 2013)		1

number of Shares set forth in such line is fully vested on the vest date set forth in such line. The number of Shares covered by each such vesting installment shall equal the quotient of (A) the total number of Shares set forth in such line divided by (B) the total number of such anniversaries scheduled to occur from the vest date in the prior line (or, if none, from the Vesting Commencement Date) through and including the vest date in such line; provided that fractional shares shall not vest but shall accumulate.

The date on which any portion of the Option is scheduled to vest pursuant to this Section 2(i)(a) (or otherwise pursuant to this Agreement or the Plan) is referred to as a “vesting date.”

(b)

This Option may not be exercised for a fraction of a share.

(c)

If the Optionee takes an authorized leave of absence, or in the event of the Optionee’s death, disability or other termination of employment, the exercisability of this Option is governed by Sections 6 through 9 below, subject to the limitations contained in Sections 2(i)(d) and (e).

(d)

In no event may this Option be exercised after the expiration date set forth in the Notice of Grant.

(e)

(ii)

Method of Exercise.

(a)

This Option shall be exercisable by delivering notice to the Company or a broker designated by the Company in such form and through such delivery method as shall be acceptable to the Company or the designated broker, as appropriate (the “Exercise Notice”). The Exercise Notice shall specify the election to exercise this Option and the number of Shares in respect of which this Option is being exercised, shall include such other representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan and applicable law, and shall be accompanied by payment of the aggregate Exercise Price for the Shares in respect of which the Option is being exercised and any applicable tax withholding under Section 15 below. This Option shall be


Stock Option Agreement for U.S. Executives (May 2013)		2

deemed to be exercised upon receipt by the Company or the designated broker of such Exercise Notice accompanied by such payment.

(b)

As a condition to the exercise of this Option, the Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the exercise of this Option or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise.

(c)

Continuance of Employment/Service Required. The Vesting Schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of this Option and the rights and benefits under this Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Optionee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Sections 6, 7 and 8 below or under the Plan.


Stock Option Agreement for U.S. Executives (May 2013)		3

6.	Termination of Relationship; Leaves of Absence.

(i)

Termination of Relationship. In the event of termination of the Optionee’s Continuous Status as an Employee or Consultant, the Optionee may, to the extent otherwise so entitled at the date of such termination (the “Termination Date”) and after giving effect to any accelerated vesting that may be required in the circumstances pursuant to Section 6(ii) or Section 9, exercise this Option during the Post Termination Exercise Period set forth in the Notice of Grant. To the extent that the Optionee was not entitled to exercise this Option at the Termination Date, or if the Optionee does not exercise this Option within the time specified in the Notice of Grant, this Option shall terminate. Further, to the extent allowed by applicable law, if the Optionee is indebted to the Company on the Termination Date, the Optionee’s right to exercise this Option shall be suspended until such time as the Optionee satisfies in full any such indebtedness.

(ii)

Notwithstanding the foregoing clause (i) but subject to Section 9 below:

(A)

Termination During Annual Vesting Period: subject to clause (ii)(B) below, in the event (1) the termination of the Optionee’s employment is by the Company, Parent or Subsidiary without Cause (as defined below) or due to the Optionee’s death or Total Disability (as defined in the Plan) and the Optionee complies with the release and other requirements described in Section 10, (2) the Termination Date is not a scheduled vesting date and is six months or less before the next scheduled vesting date, and (3) on the Termination Date the period of time between (x) the then-prior vesting date (or, if none, the date of grant specified in the Notice of Grant (the “Date of Grant”) or any earlier vesting commencement date specified by the Administrator at the time of grant) and (y) the next scheduled vesting date is six months or more, then the portion of the Option that is scheduled to vest on the next scheduled vesting date (to the extent then outstanding and unvested) shall vest and become exercisable on the later of the Termination Date or the date the Optionee’s full release of any and all claims against the Company as contemplated by Section 10 becomes irrevocable. Any portion of the Option that does not vest in accordance with the foregoing provisions of this clause (ii)(A) shall terminate as of the Termination Date. For avoidance of doubt, this clause (ii)(A) will not apply to any such termination (other than a termination due to the Optionee’s death or Total Disability) that occurs at any time within the 12-month period following a Change in Control (as defined below).

(B)

Front-Loaded Awards - Termination During Annual Vesting Period: notwithstanding the foregoing clause (ii)(A), in the event (1) the termination of the Optionee’s employment is by the Company, Parent or Subsidiary without Cause or due to the Optionee’s death or Total Disability and the Optionee complies with the release and other requirements described in Section 10, and (2) the Option is designated as “front loaded” in the Notice of Grant, then the Option shall vest and become exercisable upon the later of the Termination Date or the date the


Stock Option Agreement for U.S. Executives (May 2013)		4

Optionee’s full release of any and all claims against the Company as contemplated by Section 10 becomes irrevocable with respect to a number of shares equal to the quotient of (x) the number of shares subject to the portion of the Option that would have vested under clause (ii)(A) if this were not a front-loaded award, divided by (y) the number of years of annual awards this grant represents, as stated in the Notice of Grant. Any portion of the Option that does not vest in accordance with the foregoing provisions of this clause (ii)(B) shall terminate as of the Termination Date. For avoidance of doubt, this clause (ii)(B) will not apply to any such termination (other than a termination due to the Optionee’s death or Total Disability) that occurs at any time within the 12-month period following a Change in Control.

(C)

Extended Post-Termination Exercise Period. Notwithstanding the provisions of Section 6(i) above, in the event of termination of the Optionee’s employment by the Company, Parent or Subsidiary without Cause , the Optionee may, but only within six (6) months from the Termination Date (but in no event later than the expiration date set forth in the Notice of Grant), exercise this Option to the extent otherwise so entitled at the Termination Date (after giving effect to any accelerated vesting pursuant to the foregoing provisions of this Section 6(ii) that may apply in the circumstances). To the extent that the Optionee was not entitled to exercise this Option at the Termination Date, or if the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, this Option shall terminate.

(iii)

Disability of Optionee. Notwithstanding the provisions of Section 6(i) above, in the event of termination of the Optionee’s Continuous Status as an Employee or Consultant as a result of Total Disability, the Optionee may, but only within twelve (12) months from the Termination Date (but in no event later than the expiration date set forth in the Notice of Grant), exercise this Option to the extent otherwise so entitled at the


Stock Option Agreement for U.S. Executives (May 2013)		5

Termination Date (after giving effect to any accelerated vesting pursuant to the Section 6(ii) that may apply in the circumstances). To the extent that the Optionee was not entitled to exercise this Option at the Termination Date, or if the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, this Option shall terminate.

Death of Optionee. Notwithstanding the provisions of Section 6(i) above, in the event of the death of the Optionee during the period of the Optionee’s Continuous Status as an Employee or Consultant, or within thirty (30) days following the termination of the Optionee’s Continuous Status as an Employee or Consultant, this Option may be exercised, at any time within twelve (12) months following the date of the Optionee’s death (but in no event later than the expiration date set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquired the right to exercise this Option by bequest or inheritance, but only to the extent the Optionee was entitled to exercise this Option at the date of death or, if earlier, the date of termination of the Optionee’s Continuous Status as an Employee or Consultant (after giving effect to any accelerated vesting pursuant to the Section 6(ii) that may apply in the circumstances). To the extent that the Optionee was not entitled to exercise this Option at the date of death or termination, as the case may be, or if the Optionee’s estate or the person who acquired the right to exercise this Option by bequest or inheritance does not exercise such Option (to the extent otherwise so entitled) within the time specified in this Agreement, this Option shall terminate.

9.	Change in Control. The following provisions shall apply in the event of a Change in Control (as such term is defined below):

(i)

In the event that, during the period of twelve (12) months following the Change in Control, the Optionee’s employment is terminated by the Company, Parent or any Subsidiary without Cause or by the Optionee for Good Reason (as such terms are defined below) and the Optionee complies with the release and other requirements described in Section 10, this Option, to the extent then outstanding and not vested, shall become fully vested and exercisable in accordance with Section 6 as of the later of the Termination Date or the date the Optionee’s full release of any and all claims against the Company as contemplated by Section 10 becomes irrevocable.

(ii)

For purposes of this Agreement, “Change in Control” shall mean the first of the following events to occur after the date of grant specified in the Notice of Grant (the “Date of Grant”):

(a)

any person or group of persons (as defined in Section 13(d) and 14(d) of the Exchange Act) together with its Affiliates (as defined below), but excluding (i) the Company or any of its subsidiaries, (ii) any employee benefit plans of the Company or (iii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company (individually a “Person” and collectively, “Persons”), is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 40% or more of


Stock Option Agreement for U.S. Executives (May 2013)		6

the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates);

(b)

the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company, such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or

(c)

the stockholders of the Company approve a plan of complete liquidation or winding-up of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, provided, however, that a sale of the Company’s search business shall not constitute a Change in Control, regardless of whether stockholders approve the transaction.

(iii)

For purposes of this Agreement, “Cause” shall mean termination of the Optionee’s employment with the Company based upon the occurrence of one or more of the following which, with respect to clauses (a), (b) and (c) below, if curable, the Optionee has not cured within fourteen (14) days after the Optionee receives written notice from the Company specifying with reasonable particularity such occurrence: (a) the Optionee’s refusal or material failure to perform the Optionee’s job duties and responsibilities (other than by reason of the Optionee’s serious physical or mental illness, injury or medical condition); (b) the Optionee’s failure or refusal to comply in any material respect with material Company policies or lawful directives; (c) the Optionee’s material breach of any contract or agreement between the Optionee and the Company (including but not limited to any Employee Confidentiality and Assignment of Inventions Agreement or similar agreement between Optionee and the Company), or the Optionee’s material breach of any statutory duty, fiduciary duty or any other obligation that the Optionee owes to the Company; (d) the Optionee’s commission of an act of fraud, theft, embezzlement or other unlawful act against the Company or involving its property or assets or the Optionee’s engaging in unprofessional, unethical or other intentional acts that materially discredit the Company or are materially detrimental to the reputation, character or standing of the Company; or (e) the Optionee’s indictment or conviction or nolo contendre or guilty plea with respect to any felony or crime of moral turpitude. Following notice and cure as provided in the preceding sentence, upon any additional one-time occurrence of one or more of the events enumerated in that sentence, the Company may terminate the Optionee’s employment for Cause without notice and opportunity to cure. However, should the Company choose to offer the Optionee another opportunity to cure, it shall not be deemed a waiver of its rights under this


Stock Option Agreement for U.S. Executives (May 2013)		7

provision. For purposes of this definition, the term “Company” shall include a Parent or any Subsidiary of the Company.

(iv)

For purposes of this Agreement, “Good Reason” shall be deemed to exist only if the Company shall fail to correct within 30 days after receipt of written notice from the Optionee specifying in reasonable detail the reasons the Optionee believes one of the following events or conditions has occurred (provided such notice is delivered by the Optionee no later than 30 days after the initial existence of the occurrence): (a) a material diminution of the Optionee’s then current aggregate base salary and target bonus amount (other than reductions that also affect other similarly situated employees) without the Optionee’s prior written agreement; (b) the material diminution of the Optionee’s authority, duties or responsibilities as an employee of the Company without the Optionee’s prior written agreement (except that change in title or assignment to a new supervisor by itself shall not constitute Good Reason); or (c) the relocation of the Optionee’s position with the Company to a location that is greater than 50 miles from the Optionee’s current principal place of employment with the Company, and that is also further from the Optionee’s principal place of residence, without the Optionee’s prior written agreement, provided that in all events the termination of the Optionee’s service with the Company shall not be treated as a termination for “Good Reason” unless such termination occurs not more than six (6) months following the initial existence of the occurrence of the event or condition claimed to constitute “Good Reason.” For purposes of this definition, the term “Company” shall include a Parent or any Subsidiary of the Company.

(v)

For purposes of this Agreement, “Affiliate” means, with respect to any individual or entity, any other individual or entity who, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such individual or entity.

This Option shall not be subject to the acceleration of vesting provisions of Section 2.5 of the Amended and Restated Yahoo! Inc. Change in Control Employee Severance Plan for Level I and Level II Employees.

10.

Conditions of Accelerated Vesting; Exclusive Remedy. The accelerated vesting provisions specified in Sections 6 and 9 above are conditioned on (1) the Optionee’s signing a full release of any and all claims against the Company in a release form acceptable to the Company (within the period specified in it by the Company, which in no event shall be more than fifty days following the Optionee’s Termination Date) and the Optionee’s not revoking such release pursuant to any revocation rights afforded by applicable law, and (2) the Optionee’s compliance with the Optionee’s obligations under his or her Employee Confidentiality and Assignment of Inventions Agreement, or similar agreement. The Optionee agrees that such accelerated vesting benefits specified in this Agreement (and any applicable severance benefits provided under a written agreement with the Company then in effect in accordance with its terms) will constitute the exclusive and sole remedy for any termination of the Optionee’s employment and the Optionee covenants not to assert or pursue any other remedies, at law or in equity, with respect to the Optionee’s termination and/or employment.


Stock Option Agreement for U.S. Executives (May 2013)		8

11.

12.	Term of Option. This Option may not be exercised after the expiration date set forth in the Notice of Grant, and may be exercised on or prior to such date only in accordance with the Plan and the terms of this Option.

13.

No Right to Continued Employment. The Optionee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule and Section 2 above is earned only by continuing in the employ or service of the Company at the will of the Company (not through the act of being hired, being granted this Option or acquiring Shares under this Agreement). The Optionee further acknowledges and agrees that nothing in this Agreement, nor in the Plan which is incorporated in this Agreement by reference, shall confer upon the Optionee any right with respect to continuation as an Employee or Consultant with the Company, a Parent, or any Subsidiary, nor shall it interfere with or restrict in any way the right of the Company, a Parent or any Subsidiary, which is hereby expressly reserved, to remove, terminate or discharge the Optionee at any time for any reason whatsoever, with or without cause and with or without advance notice.

14.

Notice of Disqualifying Disposition of Incentive Stock Option Shares. If this Option is an Incentive Stock Option, and if the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after transfer of such Shares to the Optionee upon exercise of the Incentive Stock Option, the Optionee shall notify the Company in writing within thirty (30) days after the date of any such disposition. The Optionee agrees that the Optionee may be subject to the tax withholding provisions of Section 15 below in connection with such sale or disposition of such Shares.

15.

Tax Withholding. The Optionee shall pay to the Company promptly upon request, and in any event at the time the Optionee recognizes taxable income in respect of the Option, an amount equal to the taxes the Company determines it or the Optionee’s employer is required to withhold under applicable tax laws with respect to the Option. Such payment may be made by any of, or a combination of, the following methods: (i) cash or check; (ii) out of the Optionee’s current compensation; (iii) by surrender of other shares of Common Stock of the Company which (a) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Optionee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (b) have a Fair Market Value on the date of surrender equal to the amount required to be withheld; (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of this Option that number of Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld or (v) by delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the amount required to be withheld; provided that the Administrator may from time to


Stock Option Agreement for U.S. Executives (May 2013)		9

time limit the availability of any non-cash payment alternative. For these purposes, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the “Tax Date”).

(i)

the election must be made on or prior to the applicable Tax Date;

(ii)

once made, the election shall be irrevocable as to the particular Shares of this Option as to which the election is made;

(iii)

all elections shall be subject to the consent or disapproval of the Administrator; and

(iv)

16.

18.	Bound by Plan. By signing this Agreement, the Optionee acknowledges that he/she has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

19.	Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of the Optionee and the beneficiaries, executors, administrators, heirs and successors of the Optionee.


Stock Option Agreement for U.S. Executives (May 2013)		10

20.	Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.

21.	Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

22.	Governing Law/Choice of Venue.

(i)

(ii)

23.

24.	Recoupment. Notwithstanding any other provision herein, the recoupment or “clawback” policies adopted by the Administrator and applicable to equity awards, as such policies are in effect from time to time, shall apply to the Option and any Shares that may be issued in respect of the Option.

25.	Entire Agreement. This Agreement, the Notice of Grant and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

26.	Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

27.	Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

28.	Signature. This Agreement shall be deemed executed by the Company and the Optionee as of the Date of Grant upon execution by such parties (or upon the Optionee’s online acceptance) of the Notice of Grant.


Stock Option Agreement for U.S. Executives (May 2013)		11

EX-10.2(D)

Exhibit 10.2(D)

YAHOO! INC.

NOTICE OF RESTRICTED STOCK UNIT GRANT

[grantee name]

[employee ID]

[address]

You have been granted an award of Restricted Stock Units by Yahoo! Inc. (the “Company”) as follows:


Date of Grant:		[Date]

Total Number of Restricted		[share number]
Stock Units Granted:

Type of RSU:		U.S. Employee RSU

Vesting Schedule:

Vesting Date

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]


		[INSERT IF APPLICABLE: This ‘front loaded’ grant represents [#] years of annual awards.]

Manner of Payment by Company:		[stock] [cash] [cash or stock at Company’s election]

Governing Documents:		RSU Award Agreement for U.S. Employees
		1995 Stock Plan (the “Plan”)

By your acceptance of this award through the Company’s online acceptance procedure (or by your signature and the signature of the Company’s representative below):

•

you acknowledge receiving and reviewing the Governing Documents (listed above) and the Supplemental Documents (listed below);

•

you agree that the Restricted Stock Units are granted under and governed by the terms and conditions of the Governing Documents and you agree to be bound by the terms of this Notice of Restricted Stock Unit Grant and the Governing Documents, all of which are hereby incorporated by reference into this Notice of Restricted Stock Unit Grant; and

•

This Notice of Restricted Stock Unit Grant shall be construed and determined in accordance with the laws of the U.S. State of Delaware (without giving effect to the conflict of laws principles thereof) and shall be deemed to have been executed and delivered by the parties hereto as of the Date of Grant.


GRANTEE:	YAHOO! INC.

[Click here to accept]	By:	/s/ Marissa A. Mayer
Signature		Marissa A. Mayer

[grantee name]	Title:	Chief Executive Officer
Name

Supplemental Documents:	U.S. Prospectus
	Insider Trading Policy

YAHOO! INC.

1995 STOCK PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR U.S. EMPLOYEES

Section 1. Grant of Restricted Stock Unit Award

(a)

Grant of Restricted Stock Units (“RSUs”). Yahoo! Inc., a Delaware corporation (the “Company”), hereby grants to the grantee (the “Grantee”) named in the Notice of Restricted Stock Unit Grant (the “Notice of Grant”) the total number of RSUs (the “Award”) set forth in the Notice of Grant, on the terms and conditions set forth in this Restricted Stock Unit Award Agreement for U.S. Employees (this “Agreement”) and as otherwise provided in the Yahoo! Inc. 1995 Stock Plan, as amended (the “Plan”).

(b)

Incorporation of Plan; Capitalized Terms. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Administrator shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon the Grantee and his/her legal representative in respect of any questions arising under the Plan or this Agreement.

Section 2. Terms and Conditions of Award

The grant of RSUs provided in Section 1(a) shall be subject to the following terms, conditions and restrictions:

(a)	Limitations on Rights Associated with RSUs. The RSUs are bookkeeping entries only. The Grantee shall have no rights as a stockholder of the Company, no dividend rights and no voting rights with respect to the RSUs.

(b)

Restrictions. The RSUs and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution. Any attempt to dispose of any RSUs in contravention of the above restriction shall be null and void and without effect.

(c)	Lapse of Restrictions. Subject to Section 2(e) below, on each vesting date specified in the vesting schedule set forth in the Notice of Grant (the “Vesting Schedule”), the number of RSUs set forth opposite such vesting date shall vest and become non-forfeitable.


RSU Award Agreement for U.S. Employees (May 2013)		1

(d)	Timing and Manner of Payment of RSUs.

(i)

In the event that the Notice of Grant specifies that the manner of payment by the Company shall be stock, as soon as practicable after (and in no case more than seventy-four days after) the date any RSUs subject to the Award become non-forfeitable (the “Payment Date”), such RSUs shall be paid by the Company delivering to the Grantee a number of Shares equal to the number of RSUs that become non-forfeitable upon that Payment Date (rounded down to the nearest whole share). The Company shall issue the Shares either (A) in certificate form or (B) in book entry form, registered in the name of the Grantee. Delivery of any certificates will be made to the Grantee’s last address reflected on the books of the Company and its Subsidiaries unless the Company is otherwise instructed in writing. The Grantee shall not be required to pay any cash consideration for the RSUs or for any Shares received pursuant to the Award. Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall have any further rights or interests in any RSUs that are so paid. Notwithstanding the foregoing, the Company shall have no obligation to issue Shares in payment of the RSUs unless such issuance and such payment shall comply with all relevant provisions of law and the requirements of any Stock Exchange.

(ii)

In the event that the Notice of Grant specifies that the manner of payment by the Company shall be cash, as soon as practicable after (and in no case more than seventy-four days after) the Payment Date, such RSUs shall be paid in a lump sum cash payment equal in the aggregate to the Fair Market Value of a Share on the Payment Date multiplied by the number of such RSUs that become non-forfeitable upon that Payment Date. The Grantee shall not be required to pay any cash consideration for the RSUs or for any cash received pursuant to the Award. Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall have any further rights or interests in any RSUs that are so paid.

(iii)

In the event that the Notice of Grant specifies that the manner of payment by the Company shall be cash or stock at the Company’s election, as soon as practicable after (and in no case more than seventy-four days after) the Payment Date, such RSUs shall be paid, at the Company’s option, (A) in a lump sum cash payment equal in the aggregate to the Fair Market Value of a Share on the Payment Date multiplied by the number of such RSUs that become non-forfeitable upon that Payment Date or (B) by the Company delivering to the Grantee a number of Shares equal to the number of RSUs that become non-forfeitable upon that Payment Date (rounded down to the nearest whole share). If the RSUs are paid in Shares, the Company shall issue the Shares either (A) in certificate form or (B) in book entry form, registered in the name of the Grantee. Delivery of any certificates will be made to the Grantee’s last address reflected on the books of the Company and its Subsidiaries unless the Company is otherwise instructed in writing. The Grantee shall not be required to pay any cash consideration for the RSUs or for any Shares or cash received pursuant to the Award. Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal


RSU Award Agreement for U.S. Employees (May 2013)		2

representatives shall have any further rights or interests in any RSUs that are so paid. Notwithstanding anything herein to the contrary, the Company shall have no obligation to issue Shares in payment of the RSUs unless such issuance and such payment shall comply with all relevant provisions of law and the requirements of any Stock Exchange.

(e)	Termination of Employment; Leaves of Absence.

(i)

Termination of Employment. In the event of the termination of the Grantee’s employment or service with the Company, Parent or any Subsidiary for any reason prior to the lapsing of the restrictions in accordance with Section 2(c) hereof with respect to any of the RSUs granted hereunder, such portion of the RSUs held by the Grantee shall be automatically forfeited by the Grantee as of the date of termination. Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall have any rights or interests in any RSUs that are forfeited pursuant to any provision of this Agreement.

(ii)

Leaves of Absence. Unless otherwise expressly provided in a Company leave of absence vesting policy approved by the Administrator or otherwise by the Administrator, and subject to compliance with all applicable laws relating to the Grantee’s employment by the Company, Parent or Subsidiary (as applicable), in the event the Grantee takes an authorized leave of absence from the Company, Parent or Subsidiary (as applicable), each vesting date specified in the vesting schedule set forth in the Notice of Grant that has not occurred as of the commencement of such leave of absence shall be tolled for the number of calendar days in the period that the Grantee is on such leave of absence, beginning with the commencement date of such leave of absence, but not beyond the maximum term of this Award as provided in the Plan (and any RSUs that have not vested and become non-forfeitable when such maximum term is reached shall be automatically forfeited by the Grantee). (For example, if the scheduled vesting date is January 1, 2014 and, prior to that date the Grantee commences a leave of absence spanning 365 calendar days, the vesting date shall (unless otherwise expressly provided in a Company leave of absence policy approved by the Administrator or otherwise by the Administrator) be tolled for 365 days and shall become January 1, 2015.)(f) Corporate Transactions. The following provisions shall apply to the corporate transactions described below:

(i)

In the event of a proposed dissolution or liquidation of the Company, the Award will terminate and be forfeited immediately prior to the consummation of such proposed transaction, unless otherwise provided by the Administrator.

(ii)

In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Award shall be assumed or substituted with an equivalent award by such successor corporation, parent or subsidiary of such successor corporation; provided that the Administrator may determine, in the exercise of its sole discretion in connection with a transaction that constitutes a permissible distribution event under Section 409A(a)(2)(A)(v) of the Code, that in lieu of such assumption or substitution, the Award shall be vested and non-forfeitable and any


RSU Award Agreement for U.S. Employees (May 2013)		3

conditions or restrictions on the Award shall lapse, as to all or any part of the Award, including RSUs as to which the Award would not otherwise be non-forfeitable.

(g)

Income Taxes. Except as provided in the next sentence, the Company shall withhold and/or reacquire a number of Shares issued in payment of (or otherwise issuable in payment of, as the case may be) the RSUs having a Fair Market Value equal to the taxes that the Company determines it or the Grantee’s employer is required to withhold under applicable tax laws with respect to the RSUs (with such withholding obligation determined based on any applicable minimum statutory withholding rates). In the event that the Company cannot (under applicable legal, regulatory, listing or other requirements, or otherwise) satisfy such tax withholding obligation in such method or in the event that the RSUs are paid in cash (as opposed to Shares), the Company may satisfy such withholding by any one or a combination of the following methods: (i) by requiring the Grantee to pay such amount in cash or check; (ii) by reducing the amount of any cash otherwise payable to the Grantee with respect to the RSUs; (iii) by deducting such amount out of any other compensation otherwise payable to the Grantee; and/or (iv) by allowing the Grantee to surrender shares of Common Stock of the Company which (A) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Grantee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (B) have a Fair Market Value on the date of surrender equal to the amount required to be withheld. For these purposes, the Fair Market Value of the Shares to be withheld or repurchased, as applicable, shall be determined on the date that the amount of tax to be withheld is to be determined.

(h)

No Advice Regarding Award. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying Shares. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

Section 3. Miscellaneous

(a)

Notices. Any and all notices, designations, consents, offers, acceptances and any other communications provided for herein shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed, in the case of the Company to both the Chief Financial Officer and the General Counsel of the Company at the principal office of the Company and, in the case of the Grantee, to the Grantee’s address appearing on the books of the Company or to the Grantee’s residence or to such other address as may be designated in writing by the Grantee. Notices may also be delivered to the Grantee, during his or her employment, through the Company’s inter-office or electronic mail systems.

(b)	No Right to Continued Employment. The Grantee understands and agrees that the vesting of Shares pursuant to the Vesting Schedule and Section 2 above is earned only by


RSU Award Agreement for U.S. Employees (May 2013)		4

continuing in the employ or service of the Company at the will of the Company (not through the act of being hired, being granted the RSUs or acquiring Shares under this Agreement). The Grantee further acknowledges and agrees that nothing in this Agreement, nor in the Plan which is incorporated in this Agreement by reference, shall confer upon the Grantee any right with respect to continuation as an employee or consultant with the Company, a Parent or any Subsidiary, nor shall it interfere with or restrict in any way the right of the Company, a Parent or any Subsidiary, which is hereby expressly reserved, to remove, terminate or discharge the Grantee at any time for any reason whatsoever, with or without cause and with or without advance notice.

(c)	Bound by Plan. By signing this Agreement, the Grantee acknowledges that he/she has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

(d)	Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of the Grantee and the beneficiaries, executors, administrators, heirs and successors of the Grantee.

(e)	Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.

(f)

Section 409A. This Agreement and the Award are intended to comply with or be exempt from, as the case may be, Section 409A of the Code so as to not result in any tax, penalty or interest thereunder. This Agreement and the Award shall be construed and interpreted accordingly. Except for the Company’s tax withholding rights, the Grantee shall be solely responsible for any and all tax liability with respect to the Award.

(g)	Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

(h)	Governing Law/Choice of Venue.

(i)

This Agreement and the rights of the Grantee hereunder shall be construed and determined in accordance with the laws of the State of Delaware (without giving effect to the conflict of laws principles thereof), as provided in the Plan.

(ii)

For the purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Award or this Agreement, the parties hereby submit and consent to the exclusive jurisdiction of the State of California where this grant is made and/or to be performed and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal court of the United States for the Northern District of California, and no other courts.


RSU Award Agreement for U.S. Employees (May 2013)		5

(i)

Imposition of Other Requirements. If the Grantee relocates to another country after the date of grant (the “Date of Grant”) specified in the Notice of Grant, the Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

(j)	Recoupment. Notwithstanding any other provision herein, the recoupment or “clawback” policies adopted by the Administrator and applicable to equity awards, as such policies are in effect from time to time, shall apply to the Award and any Shares that may be issued in respect of the Award.

(k)	Entire Agreement. This Agreement, the Notice of Grant and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

(l)	Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

(m)	Signature. This Agreement shall be deemed executed by the Company and the Grantee as of the Date of Grant upon execution by such parties (or upon the Grantee’s online acceptance) of the Notice of Grant.


RSU Award Agreement for U.S. Employees (May 2013)		6

EX-10.2(E)

Exhibit 10.2(E)

YAHOO! INC.

NOTICE OF RESTRICTED STOCK UNIT GRANT

[grantee name]

[employee ID]

[address]

You have been granted an award of Restricted Stock Units by Yahoo! Inc. (the “Company”) as follows:


Date of Grant:		[Date]

Total Number of Restricted		[share number]
Stock Units Granted:

Type of RSU:		U.S. Executive RSU

Vesting Schedule:

Vesting Date

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

[#]

[Date]

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		[INSERT IF APPLICABLE: This ‘front loaded’ grant represents [#] years of annual awards.]

Manner of Payment by Company:		[stock] [cash] [cash or stock at Company’s election]

Governing Documents:		RSU Award Agreement for U.S. Executives 1995 Stock Plan (the “Plan”)

By your acceptance of this award through the Company’s online acceptance procedure (or by your signature and the signature of the Company’s representative below):

•

you acknowledge receiving and reviewing the Governing Documents (listed above) and the Supplemental Documents (listed below);

•


GRANTEE:	YAHOO! INC.

[Click here to accept]	By:	/s/ Marissa A. Mayer
Signature		Marissa A. Mayer

[grantee name]	Title:	Chief Executive Officer
Name

Supplemental Documents:	U.S. Prospectus
	Insider Trading Policy

YAHOO! INC.

1995 STOCK PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR U.S. EXECUTIVES

Section 1. Grant of Restricted Stock Unit Award

(a)

Grant of Restricted Stock Units (“RSUs”). Yahoo! Inc., a Delaware corporation (the “Company”), hereby grants to the grantee (the “Grantee”) named in the Notice of Restricted Stock Unit Grant (the “Notice of Grant”) the total number of RSUs set forth in the Notice of Grant, on the terms and conditions set forth in this Restricted Stock Unit Award Agreement for U.S. Executives (this “Agreement”) and as otherwise provided in the Yahoo! Inc. 1995 Stock Plan, as amended (the “Award”).

(b)

Incorporation of Plan; Capitalized Terms. The provisions of the Yahoo! Inc. 1995 Stock Plan, as amended (the “Plan”) are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Administrator shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon the Grantee and his/her legal representative in respect of any questions arising under the Plan or this Agreement.

Section 2. Terms and Conditions of Award

The grant of RSUs provided in Section 1(a) shall be subject to the following terms, conditions and restrictions:

(a)	Limitations on Rights Associated with RSUs. The RSUs are bookkeeping entries only. The Grantee shall have no rights as a stockholder of the Company, no dividend rights and no voting rights with respect to the RSUs.

(b)

(c)	Lapse of Restrictions. Subject to Sections 2(e) through 2(g) below, on each vesting date specified in the vesting schedule set forth in the Notice of Grant, the number of RSUs set forth opposite such vesting date shall vest and become non-forfeitable.


RSU Award Agreement for U.S. Executives (May 2013)		1

(d)

Timing and Manner of Payment of RSUs. As soon as practicable after (and in no case more than seventy-four days after) the date any RSUs subject to the Award become non-forfeitable (the “Payment Date”), such RSUs shall be paid by the Company delivering to the Grantee a number of Shares equal to the number of RSUs that become non-forfeitable upon that Payment Date (rounded down to the nearest whole share). The Company shall issue the Shares either (i) in certificate form or (ii) in book entry form, registered in the name of the Grantee. Delivery of any certificates will be made to the Grantee’s last address reflected on the books of the Company and its Subsidiaries unless the Company is otherwise instructed in writing. The Grantee shall not be required to pay any cash consideration for the RSUs or for any Shares received pursuant to the Award. Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall have any further rights or interests in any RSUs that are so paid. Notwithstanding anything herein to the contrary, the Company shall have no obligation to issue Shares in payment of the RSUs unless such issuance and such payment shall comply with all relevant provisions of law and the requirements of any Stock Exchange.

(e)

Termination of Employment; Leaves of Absence. The following provisions shall apply in the event of the termination of the Grantee’s employment or service with the Company, Parent or any Subsidiary, or should the Grantee take a leave of absence from employment with the Company, Parent or any Subsidiary:

(i)

General. Except as expressly provided below in this Section 2(e) or Section 2(g), in the event of the termination of the Grantee’s employment or service with the Company, Parent or any Subsidiary for any reason prior to the lapsing of the restrictions in accordance with Section 2(c) hereof with respect to any of the RSUs granted hereunder, such portion of the RSUs held by the Grantee shall be automatically forfeited by the Grantee as of the date of termination. (The date of any such termination of the Grantee’s employment or service is referred to in this Agreement as the “Termination Date.”) Neither the Grantee nor any of the Grantee’s successors, heirs, assigns or personal representatives shall have any rights or interests in any RSUs that are forfeited pursuant to any provision of this Agreement.

(ii)

Termination Without Cause or Due to Death or Disability. Notwithstanding the foregoing clause (i) but subject to Section 2(g) below:

(A)

Termination During Annual Vesting Period: subject to clause (ii)(B) below, in the event (1) the termination of the Grantee’s employment is by the Company, Parent or Subsidiary without Cause (as defined below) or due to the Grantee’s death or Total Disability (as defined in the Plan) and the Grantee complies with the release and other requirements described in Section 2(j), (2) the Termination Date is not a scheduled vesting date and is six months or less before the next scheduled vesting date, and (3) on the Termination Date the period of time between (x) the then-prior vesting date (or, if none, the date of grant specified in the Notice of Grant (the “Date of Grant”) or any earlier vesting commencement date specified by


RSU Award Agreement for U.S. Executives (May 2013)		2

the Administrator at the time of grant) and (y) the next scheduled vesting date is six months or more, then the RSUs that are scheduled to vest on the next scheduled vesting date (to the extent then outstanding and unvested) shall vest and become non-forfeitable on the later of the Termination Date or the date the Grantee’s full release of any and all claims against the Company as contemplated by Section 2(j) becomes irrevocable. Any RSUs that vest pursuant to this clause (ii)(A) shall be paid as soon as practicable after (and in no case more than seventy-four days after) the Termination Date (provided, that if the period for the Grantee to consider and revoke any such release spans two different calendar years, payment of such RSUs will be made within such prescribed time period, but in the second of those two years). Any RSUs that do not vest in accordance with the foregoing provisions of this clause (ii)(A) shall be automatically forfeited by the Grantee as of the Termination Date. For avoidance of doubt, this clause (ii)(A) will not apply to any such termination (other than a termination due to the Grantee’s death or Total Disability) that occurs at any time within the 12-month period following a Change in Control (as defined below).

(B)

Front-Loaded Awards - Termination During Annual Vesting Period: notwithstanding the foregoing clause (ii)(A), in the event (1) the termination of the Grantee’s employment is by the Company, Parent or Subsidiary without Cause or due to the Grantee’s death or Total Disability and the Grantee complies with the release and other requirements described in Section 2(j), and (2) this award is designated as “front loaded” in the Notice of Grant, then the number of RSUs that vest upon the later of the Termination Date or the date the Grantee’s full release of any and all claims against the Company as contemplated by Section 2(j) becomes irrevocable shall equal the quotient of (x) any RSUs that would have vested under clause (ii)(A) if this were not a front-loaded award, divided by (y) the number of years of annual awards this grant represents, as stated in the Notice of Grant. Any RSUs that vest pursuant to this clause (ii)(B) shall be paid as soon as practicable after (and in no case more than seventy-four days after) the Termination Date (provided, that if the period for the Grantee to consider and revoke any such release spans two different calendar years, payment of such RSUs will be made within such prescribed time period, but in the second of those two years). Any RSUs that do not vest in accordance with the foregoing provisions of this clause (ii)(B) shall be automatically forfeited be the Grantee as of the Termination Date. For avoidance of doubt, this clause (ii)(B) will not apply to any such termination (other than a termination due to the Grantee’s death or Total Disability) that occurs at any time within the 12-month period following a Change in Control.


RSU Award Agreement for U.S. Executives (May 2013)		3

(iii)

For purposes of this Agreement, “Cause” shall mean termination of the Grantee’s employment with the Company based upon the occurrence of one or more of the following which, with respect to clauses (A), (B) and (C) below, if curable, the Grantee has not cured within fourteen (14) days after the Grantee receives written notice from the Company specifying with reasonable particularity such occurrence: (A) the Grantee’s refusal or material failure to perform the Grantee’s job duties and responsibilities (other than by reason of the Grantee’s serious physical or mental illness, injury or medical condition); (B) the Grantee’s failure or refusal to comply in any material respect with material Company policies or lawful directives; (C) the Grantee’s material breach of any contract or agreement between the Grantee and the Company (including but not limited to any Employee Confidentiality and Assignment of Inventions Agreement or similar agreement between the Grantee and the Company), or the Grantee’s material breach of any statutory duty, fiduciary duty or any other obligation that the Grantee owes to the Company; (D) the Grantee’s commission of an act of fraud, theft, embezzlement or other unlawful act against the Company or involving its property or assets or the Grantee’s engaging in unprofessional, unethical or other intentional acts that materially discredit the Company or are materially detrimental to the reputation, character or standing of the Company; or (E) the Grantee’s indictment or conviction or nolo contendre or guilty plea with respect to any felony or crime of moral turpitude. Following notice and cure as provided in the preceding sentence, upon any additional one-time occurrence of one or more of the events enumerated in that sentence, the Company may terminate the Grantee’s employment for Cause without notice and opportunity to cure. However, should the Company choose to offer the Grantee another opportunity to cure, it shall not be deemed a waiver of its rights under this provision. For purposes of this definition, the term “Company” shall include a Parent or any Subsidiary of the Company.

(iv)


RSU Award Agreement for U.S. Executives (May 2013)		4

(f)	Corporate Transactions. The following provisions shall apply to the corporate transactions described below:

(i)

(ii)

(g)	Change in Control. The following provisions shall apply in the event of a Change in Control (as defined below) prior to the date the RSUs have either become vested and non-forfeitable or have been forfeited pursuant to this Agreement:

(i)

In the event that, during the period of twelve (12) months following the Change in Control, the Grantee’s employment is terminated by the Company, Parent or any Subsidiary without Cause or by the Grantee for Good Reason (as such terms are defined below) and the Grantee complies with the release and other requirements described in Section 2(j), the RSUs subject to the Award, to the extent then outstanding and not vested, shall become fully vested and non-forfeitable as of the later of the Grantee’s Termination Date or the date any such release becomes final and irrevocable. Any RSUs that vest pursuant to this clause (i) shall be paid as soon as practicable after (and in no case more than seventy-four days after) the Termination Date (provided, that if the period for the Grantee to consider and revoke any such release spans two different calendar years, payment of such RSUs will be made within such prescribed time period, but in the second of those two years).

(ii)

For purposes of this Agreement, “Change in Control” shall mean the first of the following events to occur after the Date of Grant:

(A)


RSU Award Agreement for U.S. Executives (May 2013)		5

indirectly, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates);

(B)

(C)

(iii)

For purposes of this Agreement, “Good Reason” shall be deemed to exist only if the Company shall fail to correct within 30 days after receipt of written notice from the Grantee specifying in reasonable detail the reasons the Grantee believes one of the following events or conditions has occurred (provided such notice is delivered by the Grantee no later than 30 days after the initial existence of the occurrence): (A) a material diminution of the Grantee’s then current aggregate base salary and target bonus amount (other than reductions that also affect other similarly situated employees) without the Grantee’s prior written agreement; (B) the material diminution of the Grantee’s authority, duties or responsibilities as an employee of the Company without the Grantee’s prior written agreement (except that change in title or assignment to a new supervisor by itself shall not constitute Good Reason); or (C) the relocation of the Grantee’s position with the Company to a location that is greater than 50 miles from the Grantee’s current principal place of employment with the Company, and that is also further from the Grantee’s principal place of residence, without the Grantee’s prior written agreement, provided that in all events the termination of the Grantee’s service with the Company shall not be treated as a termination for “Good Reason” unless such termination occurs not more than six (6) months following the initial existence of the occurrence of the event or condition claimed to constitute “Good Reason.” For purposes of this definition, the term “Company” shall include a Parent or any Subsidiary of the Company.

(iv)

For purposes of this Agreement, “Affiliate” means, with respect to any individual or entity, any other individual or entity who, directly or indirectly through one or


RSU Award Agreement for U.S. Executives (May 2013)		6

more intermediaries, controls, is controlled by or is under common control with, such individual or entity.

This Award of RSUs shall not be subject to the acceleration of vesting provisions of Section 2.5 of the Amended and Restated Yahoo! Inc. Change in Control Employee Severance Plan for Level I and Level II Employees.

(h)

Income Taxes. Except as provided in the next sentence, the Company shall withhold and/or reacquire a number of Shares issued in payment of (or otherwise issuable in payment of, as the case may be) the RSUs having a Fair Market Value equal to the taxes that the Company determines it or the Grantee’s employer is required to withhold under applicable tax laws with respect to the RSUs (with such withholding obligation determined based on any applicable minimum statutory withholding rates). In the event that the Company cannot (under applicable legal, regulatory, listing or other requirements, or otherwise) satisfy such tax withholding obligation in such method, the Company may satisfy such withholding by any one or a combination of the following methods: (i) by requiring the Grantee to pay such amount in cash or check; (ii) by deducting such amount out of any other compensation otherwise payable to the Grantee; and/or (iii) by allowing the Grantee to surrender shares of Common Stock of the Company which (A) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Grantee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (B) have a Fair Market Value on the date of surrender equal to the amount required to be withheld. For these purposes, the Fair Market Value of the Shares to be withheld or repurchased, as applicable, shall be determined on the date that the amount of tax to be withheld is to be determined.

(i)

(j)

Conditions of Accelerated Vesting; Exclusive Remedy. The accelerated vesting provisions specified in Sections 2(e) and 2(g) above are conditioned on (1) the Grantee’s signing a full release of any and all claims against the Company in a release form acceptable to the Company (within the period specified in it by the Company, which in no event shall be more than fifty days following the Grantee’s Termination Date) and the Grantee’s not revoking such release pursuant to any revocation rights afforded by applicable law, and (2) the Grantee’s compliance with the Grantee’s obligations under his or her Employee Confidentiality and Assignment of Inventions Agreement, or similar agreement. The Grantee agrees that such accelerated vesting benefits specified in this Agreement (and any applicable severance benefits provided under a written agreement with the Company then in effect in accordance with its terms) will constitute the exclusive and sole remedy for any termination of the Grantee’s employment and the


RSU Award Agreement for U.S. Executives (May 2013)		7

Grantee covenants not to assert or pursue any other remedies, at law or in equity, with respect to the Grantee’s termination and/or employment.

Section 3. Miscellaneous

(a)

(b)

No Right to Continued Employment. The Grantee understands and agrees that the vesting of Shares pursuant to Section 2 above is earned only by continuing in the employ or service of the Company at the will of the Company (not through the act of being hired, being granted the RSUs or acquiring Shares under this Agreement). The Grantee further acknowledges and agrees that nothing in this Agreement, nor in the Plan which is incorporated in this Agreement by reference, shall confer upon the Grantee any right with respect to continuation as an employee or consultant with the Company, a Parent or any Subsidiary, nor shall it interfere with or restrict in any way the right of the Company, a Parent or any Subsidiary, which is hereby expressly reserved, to remove, terminate or discharge the Grantee at any time for any reason whatsoever, with or without Cause and with or without advance notice.

(c)	Bound by Plan. By signing this Agreement, the Grantee acknowledges that he/she has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

(d)	Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of the Grantee and the beneficiaries, executors, administrators, heirs and successors of the Grantee.

(e)	Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.

(f)

Section 409A. This Agreement and the Award are intended to comply with or be exempt from, as the case may be, Section 409A of the Code so as to not result in any tax, penalty or interest thereunder. This Agreement and the Award shall be construed and interpreted accordingly. Except for the Company’s tax withholding rights, the Grantee shall be solely responsible for any and all tax liability with respect to the Award.


RSU Award Agreement for U.S. Executives (May 2013)		8

(g)	Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

(h)	Governing Law/Choice of Venue.

(i)

(ii)

(i)

Imposition of Other Requirements. If the Grantee relocates to another country after the Date of Grant, the Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

(j)	Recoupment. Notwithstanding any other provision herein, the recoupment or “clawback” policies adopted by the Administrator and applicable to equity awards, as such policies are in effect from time to time, shall apply to the Award and any Shares that may be issued in respect of the Award.

(k)	Entire Agreement. This Agreement, the Notice of Grant and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

(l)	Modifications. No change, modification or waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

(m)	Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(n)	Signature. This Agreement shall be deemed executed by the Company and the Grantee as of the Date of Grant upon execution by such parties (or upon the Grantee’s online acceptance) of the Notice of Grant.


RSU Award Agreement for U.S. Executives (May 2013)		9

EX-10.15(M)

Exhibit 10.15(M)

Execution Version

NINTH AMENDMENT

TO SEARCH AND ADVERTISING SERVICES AND SALES AGREEMENT

This Ninth Amendment to Search and Advertising Services and Sales Agreement (this “Ninth Amendment”) is entered into to be effective as of June 27, 2013 (“Ninth Amendment Effective Date”) by and between Yahoo! Inc., a Delaware corporation (“Yahoo!”), and Microsoft Corporation, a Washington corporation (“Microsoft”).

WHEREAS, Yahoo! and Microsoft are parties to that certain Search and Advertising Services and Sales Agreement, entered into as of December 4, 2009, as amended (collectively, the “Agreement”); and

WHEREAS, Yahoo! and Microsoft desire to further amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows:

1. Definitions. Capitalized terms used but not defined herein have the same meanings given in the Agreement.

2. RPS Guarantee.

(a) With respect to the United States, in lieu of calculating and paying the RPS Guarantee (i.e., payments due under Exhibit E) for the United States as otherwise provided in the Agreement for Queries during the periods listed below, Microsoft will owe and pay the following amounts to Yahoo!:


Activity Period		Amendment 9 Amount
October 1, 2012 – December 31, 2012		USD$[*]
January 1, 2013 – March 31, 2013		USD$[*]
April 1, 2013 – June 30, 2013		USD$[*]
July 1, 2013 – September 30, 2013		USD$[*]
October 1, 2013 – December 31, 2013		USD$[*]
January 1, 2014 – March 31, 2014		USD$[*]

(b) In consideration for the Amendment 9 Amounts payable by Microsoft pursuant to Section 2(a) above of this Ninth Amendment, Yahoo! waives the right to receive RPS Guarantee payments in any country other than (i) Taiwan and Hong Kong and (ii) the Amendment 9 Amounts for the United States. For clarity, except for Taiwan and Hong Kong, there shall be no additional RPS Guarantee payments (i.e., beyond payments already made as of the Ninth Amendment Effective Date or otherwise set forth in the table above) due.

(c) Each Amendment 9 Amount is earned on the first day of the applicable activity period subject to Section 2(f) below of this Ninth Amendment; provided, however, payment for each activity

Confidential

[*]	Indicates that certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to omitted portions.

Execution Version

period shall be due from Microsoft to Yahoo! 45 days after the end of that period. For the three activity periods starting on October 1, 2012 and ending on June 30, 2013, the payment due date shall be 30 days from the Ninth Amendment Effective Date. At least 10 days prior to the payment due dates set forth in the preceding two sentences (e.g., 35 days following the end of the applicable activity period) and no earlier than the later of July 20, 2013 and 20 days after the end of the applicable activity period, Yahoo! shall invoice Microsoft via Microsoft’s online payment system (as provided in Section 9.2.4(a)(1) of the Agreement), with payment to be made to Yahoo! Inc. in US dollars. If Yahoo! fails to invoice Microsoft within the period of time specified in the prior sentence, Microsoft’s payment due date shall be automatically extended by an equal number of days (e.g., if Yahoo! invoices Microsoft 5 days prior to the payment due date for an activity period then Microsoft’s payment due date will be extended for 5 days for the applicable activity period). During the period for invoice submission described in this paragraph, if after reasonable diligence Microsoft’s online payment system is unavailable or unable to accept Yahoo!’s invoice submission or Yahoo! is unable to submit an invoice, Yahoo! may provide a written invoice instead pursuant to the notice provisions of Section 20.5 of the Agreement (unless Microsoft provides in writing an alternate address for receipt of such invoices) specifically noting the unavailability of such systems.

(d) Sections 6-7 of the Fifth Amendment to the Agreement are void and not effective with respect to any countries other than Taiwan and Hong Kong. If Microsoft is more than 30 days late in paying any Amendment 9 Amount set forth in Section 2(a) of this Ninth Amendment, Yahoo! may notify Microsoft in accordance with Section 20.5 of the Agreement and specifically reference this Section. If Microsoft fails to make such payment within 30 days after receiving Yahoo!’s notice, then Sections 6 and 7 of the Fifth Amendment will “resume” with respect to any Covered Country that was not yet past the time when [*] would have begun (in the absence of this Ninth Amendment) as of the first day of the activity period related to such Amendment 9 Amount that Microsoft had failed to pay. Further, for any Covered Country in which this “resume” applies, Yahoo! shall provide Microsoft with the Guarantee Adjustor for the [*] period defined in Section 6(a) of the Fifth Amendment prior to Microsoft’s being required to decide whether to opt to [*] per Section 6(a)(A) of the Fifth Amendment, and the timetable for all associated activities and elections shall be similarly adjusted as required to reasonably implement this sentence. For clarity, in case of “resume” and Microsoft’s opting [*] for a specific country, no retroactive payment (i.e., prior to such election) shall apply with respect to such country. For clarity, Microsoft’s payment of any Amendment 9 Amount under such circumstances does not prejudice Microsoft’s right to claim a Dispute over the Amendment 9 Amounts and follow the process set forth in Section 17 of the Agreement, including commencing an arbitration under Section 17.4 of the Agreement to recover such payments.

(e) Yahoo! and Microsoft agree that the Amendment 9 Amounts set forth in the above table fully and finally settle and resolve (i) any and all payments, or adjustments to payments, owed by or to either party in connection with [*] through the Ninth Amendment Effective Date, (ii) any expenses incurred from the Commencement Date through the Ninth Amendment Effective Date which are subject to reimbursement under Section 8.2 (except as provided in the immediately following sentence), (iii) any [*] amounts submitted to Microsoft pursuant to Section 8.2 from the Commencement Date through the Ninth Amendment Effective Date except for [*] which were not incurred in good faith, and (iv) interest related to late payments owed by either party prior to the Ninth Amendment Effective Date. Microsoft further agrees to reimburse Yahoo! for the additional $[*] submitted to Microsoft for reimbursement immediately prior to the Ninth Amendment Effective Date, as long as Microsoft finds the additional $[*] as per the terms of Section 8.2 of the Agreement as if those expenses had been submitted in a timely fashion.

(f) In the event the Agreement is terminated during an activity period provided in the table above, the Amendment 9 Amount due for such activity period shall be adjusted pro-rata to reflect the number of days in such activity period prior to termination as a percentage of total days during such activity period.

Confidential

[*]	Indicates that certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to omitted portions.

Execution Version

(g) Within 30 days of the Ninth Amendment Effective Date, Yahoo! shall pay to Microsoft (i) all [*], and (ii) $[*]. Beyond the foregoing $[*] that is due to Microsoft, the parties agree to waive [*] issued prior to the Ninth Amendment Effective Date. Microsoft agrees that adjustments to Net Revenues [*].

3. RPS Guarantee in Taiwan & Hong Kong.

(a) After the first sentence of the definition of “Control Bucket” (in Exhibit E), the following shall be inserted: “Further, with respect to the Guarantee for Taiwan and Hong Kong, traffic in the Control Bucket shall be [*] (as eligible traffic to the [*] named search entry point is defined in the second paragraph of Section 3.1(a)(2) of Exhibit E, except that references to the US and non-US are replaced by the applicable country).”

(b) To minimize the impact of [*] being different between certain periods of the Reference Period and the True-Up Period that are being compared, the parties desire to utilize a Control Bucket in the True-Up Period which has an [*] as similar as possible to that used in [*] during the same True-Up Period, in calculating the Guarantee Adjustor for [*], and to estimate the effect of such [*] on the Reference Period for purposes of comparing with the True-Up Period. To achieve this, Yahoo! will use the same [*] in the Control Bucket as used in [*] on the [*] during the True-Up Period, and will [*] the True-Up Period RPS to reflect what it would had been had the [*] been used. This will be accomplished by adjusting the [*] for each calendar [*] by calculating the RPS impact of the [*] via a [*] which Yahoo! will run between the Ninth Amendment Effective Date and the start of [*], using the parties’ [*]. All results and computations performed by Yahoo! will be shared with Microsoft. During the months where the [*] is not similar to the current [*], the [*] will be adjusted up or down by the average percentage indicated by the [*] previously performed.

(c) For the [*] that the parties previously have been discussing ([*]), the parties have agreed to “[*]” between their positions in calculating the Guarantee Adjustor for [*]. The Control Bucket during the Guarantee Period shall reflect for each of these items the same treatment as Yahoo!’s [*] during the same period for each of these [*]. For each of these [*], where treatment differs in the Control Bucket on corresponding dates between the Reference Period and True-Up Period for any or all of these [*], the Adjusted Control RPS shall incorporate and reflect [*] as measured for each of these [*], as reasonably determined by [*] which Yahoo! will perform in the [*], consistent with the parties’ marketplace teams’ historical methodology for estimating such [*], and Yahoo! will run such [*] using current Control Bucket settings (except for the [*]). The parties shall use [*] of such [*] in RPS to adjust the [*] for [*] during that portion of the True-Up Period for which the [*] exists between the Control Bucket during the Reference Period and the Control Bucket during the True-Up Period. Yahoo! will review with Microsoft all [*] and other calculations used to estimate [*], and identify on the [*] the amount applied for each of these [*]. For the avoidance of doubt, if [*] was not live in the Control Bucket for the [*] of the Reference Period, but live in the Control Bucket for the [*] of the True-Up Period, then the [*] shall be [*] as set forth above. For example, if that specific [*] was shown by the [*] described above to [*] by [*]% in the True-Up Period, then the [*] would be [*] by [*]% during that specific [*] period.

(d) The mapping table in Section 3.1(a)(1)(D) of Exhibit E to the Agreement is amended to include [*] as an additional country mapped to [*].

(e) The data source table in Section 3.1(a)(1)(B) of Exhibit E to the Agreement is amended to replace the “TBD” for [*] with “[*]”.

(f) In calculating the Guarantee Adjustor for [*], the parties shall use the same dates as in [*] (as [*] is the source country for the [*]). For example, the value of the Guarantee Adjustor for [*] on June 25 would be equal to the value of the Guarantee Adjustor in [*] on June 25.

Confidential

[*]	Indicates that certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to omitted portions.

Execution Version

4. Notices. The Yahoo contact information in Section 20.5 of the Agreement is deleted and updated as follows:

“If to Yahoo!, to:

Yahoo! Inc.

701 First Avenue

Sunnyvale, CA 94089

Attention: Laurie Mann, Senior Vice President, Search Products

Telephone: (408) 349-3300

Telecopy: (408) 349-3510”

5. Entities for Payments to or from Yahoo!. Section 9.2.4(a) of the Agreement and Exhibit J to the Agreement, as applicable, are amended to reflect that effective 90 days from the Ninth Amendment Effective Date, the new Yahoo! Payor and Payee entity for payments associated with advertisers with invoices that are delivered in Indonesia, Thailand, Philippines, Malaysia, Singapore, Vietnam and Hong Kong will be Yahoo! Netherlands BV. Section 9.2.4(a) of the Agreement and Exhibit J to the Agreement, as applicable, are amended to reflect that the effective November 1, 2013, the new Yahoo! Payor and Payee entity for payments associated with advertisers with invoices that are delivered in the United Kingdom, Ireland, Austria, Denmark, Finland, Italy, Netherlands, Norway, Russia, Spain, Sweden, Germany, France, South Africa, Israel, Turkey and the Middle East – Dubai will be Yahoo! EMEA Limited.

6. Miscellaneous. This Ninth Amendment will be governed and construed, to the extent applicable, in accordance with the laws of the State of New York, without regard to its conflict of law principles. This Ninth Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. This Ninth Amendment may be amended or modified only by a written agreement that (a) refers to this Ninth Amendment; and (b) is executed by an authorized representative of each party. This Ninth Amendment shall be binding on the parties hereto and their respective personal and legal representatives, successors, and permitted assigns. Except as expressly set forth herein, the Agreement remains in full force and effect and this Ninth Amendment shall not be construed to alter, amend or change any of the other terms or conditions set forth in the Agreement. To the extent of any conflict between this Ninth Amendment and any provisions of the Agreement, this Ninth Amendment shall control with respect to the subject matter hereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]


Confidential		4

Execution Version

IN WITNESS WHEREOF, the parties by their duly authorized representatives have executed this Ninth Amendment as of the Ninth Amendment Effective Date.


Name:	Laurence Mann	Name:	Rik van der Kooi
Title:	Senior Vice President, Search Products	Title:	COO-OSD


Confidential		5

EX-10.25(B)

Exhibit 10.25(B)

Page 1 of 3

July 26, 2013

David Dibble

Dear David:

On behalf of Yahoo! Inc. (“Yahoo!” or the “Company”), I am pleased to offer you the position of Advisor to the CEO, reporting to Marissa Mayer, on the terms described below.

Base Salary. Your salary will be $650,000 annually, less applicable taxes, deductions and withholdings.

Bonus Incentive Plan. You will continue to be eligible to participate in the 2013 bonus incentive plan applicable to your position with a target of 90% of your annual base salary, prorated based on the period of time you are employed at Yahoo! in a bonus eligible position during the relevant year, less applicable taxes, deductions and withholdings. As you know, target incentives do not constitute a promise of payment. Your actual bonus payout will depend on Yahoo!’s financial performance (and management’s and/or Yahoo!’s Compensation and Leadership Development Committee’s assessment of your individual and/or group performance, as applicable), and it is subject to, and governed by, the terms and requirements of the applicable bonus plan document. Eligibility for participation in Yahoo!’s bonus plan is subject to annual review.

Equity. Subject to your acceptance of this agreement:

•

Time-based awards: The Company has accelerated the vesting of all installments of your time-based stock options and time-based restricted stock units (“RSUs”) granted by the Company that were unvested and are scheduled to vest between July 24, 2013 and July 31, 2014 (this will result in the acceleration of 137,051 stock options and 265,484 RSUs); and

•

Performance-based awards: The Company has accelerated the vesting of 30,545 shares covered by your performance-based RSUs granted in February 2011. Shares from your performance-based RSU granted in February 2013 will be credited in February 2014 (based on the achievement of applicable performance goals) and you will vest in 7/12 of those credited shares.

You agree that to the extent not accelerated pursuant to the foregoing provisions of this agreement, all of your unvested time-based and/or performance-based equity awards (including (without limitation) all of your TSR-based RSU granted in July 2012) shall be automatically forfeited upon execution of this agreement and you shall have no further rights or interests in the portions of the awards that are forfeited. Enclosed with this agreement as Appendix A is a summary of equity shares accelerated and cancelled. Except as expressly set forth in this agreement, the original terms and conditions of your equity awards remain in full force and effect. You agree to cooperate with all procedural and other requirements reasonably requested by the Company to effect the accelerations and forfeitures described in this agreement. You agree that Appendix A accurately reflects your equity position, and you agree that you will receive no additional equity grants.

Employment At-Will. This agreement does not constitute a contract of employment for any specific period of time, but will continue an employment at-will relationship that may be terminated at any time by you or Yahoo!, with or without cause and with or without advance notice. The at-will nature of the employment relationship may not be modified or amended except by written agreement signed by Yahoo!’s Chief Executive Officer and you.

Cancellation of Existing Severance Arrangements and Agreements / Release. You agree that as consideration for the compensation and benefits offered in this agreement, all prior severance agreement and/or arrangements between you and Yahoo! (including (without limitation) the severance agreement that you signed on October 28, 2011) are immediately null and void, and that you are not entitled to and will not seek any severance upon the conclusion of your Yahoo! employment. Also as consideration for the compensation and benefits offered in this agreement, and by signing below, you generally and completely release the Company and

Page 2 of 3

its directors, employees, shareholders and agents from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this agreement. You also expressly waive and relinquish all rights and benefits under any law with respect to your release of any unknown or unsuspected claims, including Section 1542 of the California Civil Code (“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”). You further agree that upon the conclusion of your employment, you will execute another comprehensive release of claims (using the Company’s standard form) in favor of Yahoo!.

Entire Agreement. This agreement (inclusive of any referenced documents or agreements) constitutes the entire agreement between you and Yahoo! with respect to the subject matters hereof and supersedes any and all prior or contemporaneous oral or written representations, understandings, agreements or communications between you and Yahoo! concerning such subject matters. With respect to unrelated subject matters and except as specifically provided in this letter, the terms and conditions of your employment are unchanged.

Accepting this Agreement. We’re pleased to have you continue as part of Yahoo!’s leadership team. To accept the terms of this agreement, please sign in the space provided below and return to me. If you accept, you will begin your new position effective immediately.

Regards,

/s/ Jacqueline D. Reses

Jacqueline D. Reses

Chief Development Officer

I accept this offer of continued employment with Yahoo! Inc. and agree to the terms and conditions outlined in this agreement. I will remain eligible to participate as a regular employee in the Yahoo health and death benefits program during the term of employment in this position.


		/s/ David Dibble						7/29/13
		David Dibble						Date

Enclosure: Appendix A – Summary of Equity Shares Accelerated and Cancelled

Cc: Personnel file

Page 3 of 3

Appendix A

Summary of Equity Shares Accelerated and Cancelled


							12 months			Shares
Grant Type	Grant Date		Vest Date		Shares		Acceleration			Cancelled		Notes
Options		2/25/10		2/25/14		19,695		19,695
		2/25/11		2/25/14		33,393		33,393
		2/27/12		2/27/14		83,963		83,963
				2/27/15		83,963		0			83,963
				Total Options				137,051			83,963
Time-Based RSUs		2/25/10		2/25/14		6,102		6,102
		2/25/11		2/25/14		10,180		10,180
		10/25/11		10/25/13		200,000		200,000
		2/27/12		2/27/14		21,163		21,163
				2/27/15		21,164		0			21,164
		7/26/12		7/26/14		10,767		10,767
				7/26/15		10,767		0			10,767
		2/28/13		2/28/14		12,192		12,192
				3/28/14		1,016		1,016
				4/28/14		1,016		1,016
				5/28/14		1,016		1,016
				6/28/14		1,016		1,016
				7/28/14		1,016		1,016
				8/2014 - 2/2017		1,016		0			31,498
				Total Time-Based RSUs				265,484			63,429
Performance-Based		2/25/11		2/25/14		61,090		30,545				Employed for entire performance
RSUs												period; accelerate 100%
		7/26/12		7/26/15		32,300		0			32,300	3 year performance period based
												on relative TSR; not in position for
												>50% of performance period, thus,
												no additional vesting
		2/28/13		2/28/14		12,192		TBD	*			Based on 2013 performance; is in
												position for 7/12 of performance
												period
				2/28/15		12,192		0			12,192
				2/28/16		12,193		0			12,193
				2/28/17		12,193		0			12,193
		Total Performance-Based RSUs						30,545			68,878
				Total All Equity				433,080			216,270
		Value of Accelerated Equity at $29/share					$	10.5M

*	Performance shares to be accelerated dependent on actual performance at end of period.

EX-10.27(A)

Exhibit 10.27(A)

Page 1 of 5

[YAHOO LETTERHEAD]

June 15, 2012

Michael Barrett

540 Sleepy Hollow Road

Briarcliff Manor, NY 10510

Dear Michael:

On behalf of Yahoo! Inc. (“Yahoo!” or the “Company”), I am pleased to offer you the position of Chief Revenue Officer, reporting to Ross Levinsohn, working in the US – New York City office. Your appointment is subject to approval by the Company’s Board of Directors and your compensation package as outlined herein is subject to approval of the Compensation and Leadership Development Committee of the Board of Directors (“Compensation Committee”). For purposes of this letter, your first day of work at Yahoo! will be considered your “Employment Start Date”.

Base Salary. Your starting annual base salary will be $58,333.34 per month ($700,000.00 annually), less applicable taxes and withholdings, paid semi-monthly and subject to annual review. Yahoo!’s regularly scheduled pay days are currently on the 10^th and 25^th of every month.

Executive Incentive Plan. You also will be eligible to participate in the Executive Incentive Plan (EIP) (for 2012 eligibility your Employment Start Date must be on or before October 1, 2012 – or if October 1 is on a weekend or holiday, the first business day thereafter), with a target incentive of 120% of your annual base salary, pro-rated based on the period of time you are employed at Yahoo! in an EIP eligible position during the relevant company fiscal year, less applicable taxes, deductions, and withholdings. Target incentives do not constitute a promise of payment. To qualify for the incentive bonus, you must remain employed with the Company through the date that the incentive bonus is paid (as specified in the EIP). Your actual EIP payout will depend on Yahoo! financial performance and management’s assessment of your individual performance, and it is subject to, and governed by, the terms and requirements of the EIP document. Eligibility for participation in the EIP is subject to annual review.

In addition, subject to approval by the Compensation Committee, as a senior leader of Yahoo!, during each year of your Yahoo! employment you also will be eligible for consideration to receive long term incentive equity awards under the Yahoo! Inc. 1995 Stock Plan similar to other executives at your level.

Split Sign-On Bonus. You will receive a sign-on bonus in the amount of $500,000.00, to be paid in two (2) increments. The first increment of $300,000.00 will be payable to you on the first semi-monthly paycheck that occurs 30 days after your Employment Start Date and is subject to applicable taxes, deductions, and withholdings. The second increment of $200,000.00 will be paid within 30 days after the one (1) year anniversary of your Employment Start Date (provided that you are employed by Yahoo! on that date) and also is subject to applicable taxes, deductions, and withholdings. If during the first twelve (12) months following your Employment Start Date you voluntarily resign from your employment with Yahoo! for any reason or your employment with Yahoo! is terminated by Yahoo! with Cause¹, this sign-on bonus will become due and payable by you to

For purposes of this letter, “Cause” shall mean termination of your employment (or revocation of your employment offer, as applicable) with the Company based upon the occurrence of one or more of the following which, with respect to clauses (1), (2) and (3) below, if curable, you have not cured within fourteen (14) days after you receive written notice from the Company specifying with reasonable particularity such occurrence: (1) your refusal or material failure to perform your job duties and responsibilities (other than by reason of your serious physical or mental illness, injury or medical condition), (2) your failure or refusal to comply in any material respect with material Company policies or lawful directives, (3) your material breach of any contract or agreement between you and the Company (including but not limited to this letter agreement and any Employee Confidentiality and Assignment of Inventions Agreement or similar agreement between you and the Company), or your material breach of any statutory duty, fiduciary duty or any other obligation that you owe to the Company, (4) your commission of an act of fraud, theft, embezzlement or other unlawful act against the Company or involving its property or assets or your engaging in unprofessional, unethical or other intentional acts that materially discredit the Company or are materially detrimental to the reputation, character or standing of the Company, (5) your indictment or conviction or nolo contendre or guilty plea with respect to any felony or crime of moral turpitude, or (6) your failure to provide within two business days any documentation requested in writing by Yahoo! Management prior to your Employment Start Date. Following notice and cure as provided in the preceding sentence, upon any additional one-time occurrence of one or more of the events enumerated in that sentence, the Company may terminate your employment for Cause without notice and opportunity to cure. However, should the Company choose to offer you another opportunity to cure, it shall not be deemed a waiver of its rights under this provision.

Page 2 of 5

[YAHOO LETTERHEAD]

Yahoo! on your last day of employment. If your employment with Yahoo! terminates for any reason before the sign-on bonus payment date(s) referred to in this paragraph, you will have no right to a bonus (except to the extent of any payment date that occurred before the date that your employment terminates). There will be no pro-rata bonus payment if you are employed for a portion (even if a substantial portion) of the applicable bonus period but not on the corresponding bonus payment date.

New Hire Stock Option Grant. As a part of the Yahoo! team, we strongly believe that ownership of the Company by Yahoos is an important factor to our success. Therefore, as part of your compensation, management will recommend that the Compensation Committee grant you an option to purchase 300,000 shares of Yahoo! Inc.’s common stock. The exercise price for this option will be the fair market value of Yahoo! common stock on the date of grant as determined by the Compensation Committee. The option will vest over a four year period: 1/4 of the option will vest on the 12 month anniversary of the date of grant, and 1/8 of the option will vest semi-annually afterwards. The option will be subject to the terms and conditions of Yahoo! Inc.’s 1995 Stock Plan, as amended, and the applicable notice of stock option grant and stock option agreement, and vesting of the option is contingent on your continued employment with Yahoo! through each vesting date.

Make-Whole Restricted Stock Units. To compensate you for financial incentives available to you in your prior position, management will also recommend that the Compensation Committee grant you a make-whole award of 300,000 Restricted Stock Units (“Make-Whole RSUs”). The RSUs will vest over a two year period: 1/2 of the RSUs will vest on each of the 12 and 24 month anniversaries of the date of grant. Except as otherwise provided in this paragraph and as specifically approved by the Compensation Committee, the RSUs will be subject to the terms and conditions of Yahoo! Inc.’s 1995 Stock Plan, as amended, and the applicable RSU award agreement, and vesting of the RSUs is contingent on your continued employment with Yahoo! through each vesting date. If, however, your employment with Yahoo! is terminated by Yahoo! without Cause or you resign for Good Reason², then any portion of the Make-Whole RSUs that had not vested as of the date your employment with Yahoo! terminates will accelerate and vest in their entirety. Payment of any accelerated Make-Whole RSUs will be satisfied promptly and in no event later than 2¹/₂ months following the date your employment with Yahoo! terminates. Following the vesting of the Make-Whole RSUs, you will receive one share of Yahoo! Inc. common stock as payment for each vested RSU (subject to tax withholding).

Benefits. A significant part of your total compensation at Yahoo! is derived from the benefits that Yahoo! provides. Yahoo! provides a very competitive benefits package for its eligible full- and part-time employees. Eligible Yahoos may participate in Yahoo!’s health insurance benefits (medical, dental and vision), life insurance, short term and long term disability, the Employee Stock Purchase Plan, 401(k) Plan, and Yahoo!’s Flexible Spending Plan (Healthcare Reimbursement Account and/or Dependent Care Reimbursement Account). Yahoos working less than 40 hours per week may not be eligible for all benefit programs or certain benefits may be provided on a pro-rated basis. Please refer to benefit plan documents for eligibility. Of course, Yahoo! may change its benefits at any time. Prior to New Hire Orientation, you will be provided a website address and logon instructions to access detailed information about Yahoo! benefits programs, including the plan documents.

Paid Time Off. As a regular Yahoo, you will be eligible to accrue up to fifteen (15) days of vacation in your first year of employment (up to a maximum as specified in our Vacation Policy). Vacation is accrued based on hours

For purposes of this letter, “Good Reason” shall be deemed to exist only if the Company shall fail to correct within 30 days after receipt of written notice from you specifying in reasonable detail the reasons you believe one or the following events or conditions has occurred (provided such notice is delivered by you no later than 30 days after the initial existence of the occurrence): (1) a material diminution of your then current aggregate base salary and target bonus amount (other than pro rata reductions that also affect substantially all other similarly situated employees) without your prior written agreement; or (2) the material diminution of your authority, duties or responsibilities as an employee of the Company without your prior written agreement; provided that in all events the termination of your service with the Company shall not be treated as a termination for “Good Reason” unless such termination occurs not more than six (6) months following the initial existence of the occurrence of the event of condition claimed to constitute “Good Reason.”

Page 3 of 5

[YAHOO LETTERHEAD]

worked, therefore Yahoos who work less than 40 hours per week accrue vacation on a pro-rata basis. In addition, Yahoo! currently provides eligible employees with fourteen (14) paid holidays each year.

Severance. In addition, as a senior leader of Yahoo!, you will be eligible for severance benefits comparable to other executives at your level. Shortly after your start date, you will be provided with Yahoo!’s Executive Severance Agreement which outlines the terms, conditions and benefits of our severance program (including a definition of a “Cause” termination that includes the criteria described in footnote 1 above).

Proprietary Agreement and No Conflict with Prior Agreements. As an employee of Yahoo!, it is likely that you will become knowledgeable about confidential and/or proprietary information related to the operations, products and services of Yahoo! and its clients. Similarly, you may have confidential or proprietary information from prior employers that should not be used or disclosed to anyone at Yahoo!. Therefore, Yahoo! requests that you read, complete, and sign the enclosed Employee Confidentiality and Assignment of Inventions Agreement (“Proprietary Agreement”) and the Proprietary Information Obligations Checklist and return it to Yahoo! prior to your Employment Start Date. In addition, Yahoo! requests that you comply with any existing and/or continuing contractual obligations that you may have with your former employers. By signing this offer letter, you represent that your employment with Yahoo! shall not breach any agreement you have with any third party.

Obligations. During your employment, you shall devote your full business efforts and time to Yahoo!. This obligation, however, shall not preclude you from engaging in appropriate civic, charitable or religious activities or from serving on the boards of directors of one or two companies that are not competitors to Yahoo!, as long the activities do not materially interfere or conflict with your responsibilities to or your ability to perform your duties of employment at Yahoo!. Any outside activities must be in compliance with and approved if required by Yahoo!’s Code of Ethics.

Non-competition. In addition to the obligations specified in the Proprietary Agreement, you agree that, during your employment with Yahoo! you will not engage in, or have any direct or indirect interest in any person, firm, corporation or business (whether as an employee, officer, director, agent, security holder, creditor, consultant, partner or otherwise) that is competitive with the business of Yahoo!, including, without limitation, any then-current activities relating to providing Internet navigational products or services and any then-current activities providing search, e-mail, chat, e-commerce, instant messaging, content (e.g., music, video), ISP (e.g., connectivity, bandwidth or storage) or other Internet-based delivery or functionality. Notwithstanding the preceding sentence, you may own not more than 1% of the securities of any company whose securities are publicly traded.

Employment At-Will. Please understand that this letter does not constitute a contract of employment for any specific period of time, but will create an employment at-will relationship that may be terminated at any time by you or Yahoo!, with or without cause and with or without advance notice. The at-will nature of the employment relationship may not be modified or amended except by written agreement signed by Yahoo!’s Chief Human Resources Officer and you.

Code of Ethics and Yahoo! Policies. Yahoo! is committed to creating a positive work environment and conducting business ethically. As an employee of Yahoo!, you will be expected to abide by the Company’s policies and procedures including, but not limited to, Yahoo!’s Guide2Working@Y! and Yahoo!’s Code of Ethics. Yahoo! requests that you review, sign and bring with you on your Employment Start Date, the enclosed Code of Ethics Acknowledgment Form.

Entire Agreement. This offer letter and the referenced documents and agreements constitute the entire agreement between you and Yahoo! with respect to the subject matter hereof and supersede any and all prior or contemporaneous oral or written representations, understandings, agreements or communications between you and Yahoo! concerning those subject matters.

Work Authorization/Visa. If you are in need of a work authorization, please let our Staffing Coordinator know at the time that you accept this offer. Please note that the number of employment visas available each year is limited by the U.S. government. In the event that your request for or extension of an employment visa is denied or an employment visa cannot be obtained within a reasonable amount of time (as determined by Yahoo!, in its sole discretion), Yahoo! reserves the right to withdraw or suspend this offer and/or your employment may be terminated

Page 4 of 5

[YAHOO LETTERHEAD]

(or if your employment has not begun, you may not become employed by Yahoo!). In the event that Yahoo! has agreed to sponsor you for an employment visa, Yahoo! will cover all expenses associated with the visa application process.

Eligibility to Work in the United States. In order for Yahoo! to comply with United States law, we ask that on your Employment Start Date you bring to Yahoo! appropriate documentation to verify your authorization to work in the United States. Yahoo! may not employ anyone who cannot provide documentation showing that they are legally authorized to work in the United States.

Foreign National Export License. Before releasing certain export-controlled technology and software to you during your employment at Yahoo!, Yahoo! may be required to obtain an export license in accordance with United States law. Yahoo! will inform you if an export license is needed. If an export license is required, then this offer of employment and/or your continued employment (if applicable) with Yahoo! is contingent upon receipt of the export license or authorization, and Yahoo! will have no obligation to employ you or provide you with any compensation or benefits until the export license or authorization is secured.

Background Check. Please understand that this offer is contingent upon the successful completion of your background check.

Accepting this Offer. We’re really excited to have you on our team and can’t wait to receive your acceptance by 5:00 p.m. (PST) on June 18, 2012. This offer is contingent on you starting employment at Yahoo! on or before July 2, 2012 or a date mutually agreed upon between you and your Hiring Manager.

To accept this offer, please:

Sign this letter in the space provided below and scan and email the following signed documents to Matt Summers, Executive Coordinator, at [Contact]. Alternatively, you may fax the documents to Matt Summers at [Contact]:

•

Offer Letter

•

Export Compliance Form

•

Proprietary Information Obligations Checklist

•

Employee Confidentiality and Assignment of Inventions Agreement (NDA)

A second copy of each of the documents has been provided for your records.

Mail all of the signed documents listed on the New Hire Document Checklist to Matt Summers in the envelope provided at least five (5) business days prior to your Employment Start Date.

We can’t wait to start working with you and hope that you’ll find working at Yahoo! one of the most rewarding experiences of your life, both professionally and personally.

Start practicing your yodel!

/s/ Grant Bassett

o/b/o David Windley

David Windley

Chief Human Resources Officer

Page 5 of 5

[YAHOO LETTERHEAD]

I accept this offer of employment with Yahoo! Inc. and agree to the terms and conditions outlined in this letter.


/s/ Michael Barrett		Saturday, June 16, 2012
Signature		Date

Michael Barrett		July 2, 2012
Full Name		Planned Employment Start Date
	(Contingent upon completion of a satisfactory background check.)

Enclosures

Cc: HR file

EX-10.27(B)

Exhibit 10.27(B)

[YAHOO LETTERHEAD]

October 25, 2012

Michael Barrett

540 Sleepy Hollow Road

Briarcliff Manor, NY 10510

Dear Michael:

Yahoo! Inc. (“Yahoo!” or the “Company”) is prepared to offer you separation benefits to aid in your employment transition. If you (1) sign and comply with the terms of this separation agreement (the “Agreement”), (2) return a signed Waiver and Release of Claims attached to the Agreement as Exhibit A (the “Release”) to Yahoo! within the time period specified in the Release, and (3) do not revoke the Release during the applicable revocation period (collectively these are the “Agreement Eligibility Requirements”), then you will receive the severance benefits described in paragraph 3 below.

1. Resignation. Your last day of employment with the Company and your employment resignation date will be December l, 2012 (the “Separation Date”).

2. Earned Payments. On the Separation Date, Yahoo! will pay you all accrued salary, and all accrued and unused vacation earned through the Separation Date, subject to payroll deductions and required withholdings. In addition, as a resignation for “Good Reason” (as defined in your June 15, 2012 offer letter (“Offer Letter”)), any portion of the 300,000 make-whole restricted stock units described in your Offer Letter (“Make-Whole RSUs”) that had not vested as of the Separation Date will accelerate and vest in their entirety. Payment of any accelerated Make-Whole RSUs will be satisfied promptly and in no event later than 2¹/₂ months following the Separation Date. Following the vesting of the Make-Whole RSUs, you will receive one share of Yahoo! Inc. common stock as payment for each vested RSU (subject to tax withholding). You are entitled to any earned payments regardless of whether or not you sign this Agreement.

3. Severance Payments and Benefits. If you meet the Agreement Eligibility Requirements, then the Company will forgive the required repayment of the $300,000 first increment of your signing bonus described in your Offer Letter (the “Severance Benefits”).

4. Obligations. Prior to your Separation Date, you shall devote your full business efforts and time to Yahoo! and you agree that you will not engage in any activities that are in violation of Yahoo!’s Code of Ethics or any other Yahoo! policy.

5. Responsibility for Taxes. Other than Yahoo!’s obligation and right to withhold federal, state and local taxes, you will be responsible for any and all taxes, interest, and penalties that may be imposed with respect to the payments contemplated by this Agreement (including (without limitation) those imposed under Internal Revenue Code Section 409A). To the extent that this Agreement is subject to Internal Revenue Code Section 409A, you and Yahoo! agree that the terms and conditions of this Agreement shall be construed and interpreted to the maximum extent reasonably possible, without altering the fundamental intent of this Agreement, to comply with and avoid the imputation of any tax, penalty or interest under Code Section 409A.

6. Employee Stock Purchase Plan. Contributions to your Employee Stock Purchase Plan (“ESPP”) will cease as of the Separation Date. Under the terms of the ESPP, all contributions you made to the ESPP that have

Page 2

not been used to purchase stock will be returned to you without interest by Yahoo! Payroll. For more information about the ESPP, please review your information via your E*TRADE online access at www.etrade.com. Should you have any questions, please contact E*TRADE directly at (800) 838-0908 or Yahoo! Stock Plan Services at stockadmin@yahoo-inc.com.

7. 40l(k) Plan. If you have questions about your 401(k) account please contact HRbenefits @yahoo-inc.com.

8. Life Insurance. Your life insurance coverage will cease on or before the Separation Date under the terms of the life insurance plan. The Company will provide you with information about the option to convert this coverage to an individual policy.

9. Flexible Spending Plan. If you enrolled in the Company’s Flexible Spending Plan and established a Healthcare Reimbursement Account and/or Dependent Care Reimbursement Account for the current plan year, you have 90 days following your Separation Date (as long as it is prior to March 31 of the following plan year) to submit any covered expenses for reimbursement provided the expenses were incurred from January 1 of the current plan year through your Separation Date. You may only submit expenses that you incurred prior to the Separation Date.

10. Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance or benefits after the Separation Date, with the exception of any benefit, the right to which has vested, under the express terms of a written benefit plan of the Company.

11. Expense Reimbursements. You agree that, within 30 days following the Separation Date, you will submit your final expense reimbursement statement and required documentation reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. Yahoo! will reimburse you for expenses pursuant to its regular business practice. You may only submit expenses that you incurred prior to the Separation Date. For a copy of the Yahoo! expense form, please email expqueries@yahoo-inc.com. Please submit completed expense reports and receipts to the Accounts Payable Department at Yahoo!, 701 First Avenue, Sunnyvale, California 94089.

12. Invention and Assignment to Yahoo!. Prior to and after your Separation Date, you agree to perform promptly all acts deemed necessary or desirable by Yahoo! to permit and assist it, at its expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in all intellectual property assigned or assignable to Yahoo! pursuant to your Employee Confidentiality and Assignment of Inventions Agreement(s) or similar agreement(s) including (without limitation) disclosing information to Yahoo!, executing documents and assisting or cooperating in legal proceedings. You understand and agree that while you will not be eligible to receive the Severance Benefits and other benefits specified in this Agreement until you have performed the acts specified in this paragraph (if requested by Yahoo!), such obligation extends beyond the Separation Date and shall only be deemed complete at Yahoo!’s sole discretion.

13. Proprietary Information Obligations. You acknowledge your continuing obligations under your Employee Confidentiality and Assignment of Inventions Agreement(s) or similar agreement(s) (collectively “NDA”), including your obligation not to use or disclose any confidential or proprietary information of the Company, its subsidiaries or affiliated entities and not to solicit Yahoo! employees and, to the extent permitted by applicable law, not to solicit Yahoo! customers as specified in your NDA.

14. Nondisparagement. You agree not to disparage Yahoo! or its officers, directors, employees, shareholders or agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided, however, that statements which are complete and made in good faith in response to any question, inquiry or request for information required by legal process shall not violate this paragraph.

15. Cooperation. You agree to reasonably cooperate with and make yourself available on a continuing basis

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to Yahoo! and its representatives and legal advisors in connection with any matters in which you are or were involved or any existing or future claims, investigations, administrative proceedings, lawsuits and other legal and business matters, as requested by Yahoo!. You also agree that within two business days of receipt (or more promptly if reasonably required by the circumstances) you shall send the Company copies of all correspondence (including (without limitation) subpoenas) received by you in connection with any legal proceedings involving or relating to Yahoo!, unless you are expressly prohibited by law from doing so. You agree that you will not cooperate with any third party in any actual or threatened claim, charge, or cause of action of any nature whatsoever against any Released Party (as defined in the Release, attached as Exhibit A) unless required to do so by law. You understand that nothing in this Agreement prevents you from cooperating with any government investigation.

16. Certification Regarding Search and Return of Yahoo! Property. You hereby certify to the following: (A) prior to the Separation Date, you will conduct a good faith and diligent search for any Yahoo! business data, whether or not such data would be considered confidential or proprietary and/or whether such data constitutes a legally protectable trade secret, including hard copy and all electronically stored data (“Yahoo! Business Data”) that may be in your possession (this search shall include reviewing the contents of any personal email accounts and Instant Messenger archives that you maintain, home computers, and other electronic computer media (CDs, USB thumb drives, disks, back-up drives, etc.) that you may have used during your employment to send, receive or store Yahoo! Business Data (“Personal Computer Media”)); (B) to the extent you locate any Yahoo! Business Data pursuant to your search described above, you will return all originals and copies of such data to Yahoo!, and make arrangements for Yahoo!, at its option, to retrieve, destroy and/or permanently delete such data from your Personal Computer Media such that you cannot recover the data or access it in any manner; (C) you have not copied, saved, downloaded, retained, disclosed, photographed or transmitted in any form whatsoever, any Yahoo! Business Data to any source except in the course of performing your duties for Yahoo! and for Yahoo!’s benefit (and will not take such any such actions prior to the Separation Date); (D) you have not copied, saved, downloaded, retained, disclosed, photographed, or transmitted in any form whatsoever, any Yahoo! Business Data to any source for the purpose of retaining such data after your Separation Date or taking such data with you to your next employer or using it in connection with any subsequent employment (and will not take such any such actions prior to the Separation Date); (E) following the Separation Date, you will not possess any Yahoo! Business Data in tangible or electronic form, except employment-related documents such as wage, benefit and related information specific to the terms and conditions of your employment with Yahoo!; (F) to the extent you have any question about whether a Yahoo! document contains Yahoo! Business Data, you will inquire of Yahoo! in writing at IPQuestionsSeparations@yahoo-inc.com concerning the specific document and receive instruction as to whether such document relates solely to your employment as defined in this paragraph or whether Yahoo! requires you to return the document(s) (in which case, you agree that such document(s) will be returned); (G) on or prior to the Separation Date, you will return all keys, access cards, credit cards, travel related cards, identification cards, phones, computers and related company-issued devices, including electronic mail devices, PDAs and/or electronic organizers, and other property and equipment belonging to Yahoo! (“Company Property”); (H) other than in the normal course of performing your duties and/or responsibilities for Yahoo! and for Yahoo!’s benefit, you did not copy, back-up, or download (or attempt to copy, back-up or download) Yahoo! Business Data that was contained on Company Property other than back-ups created on Yahoo! computer systems, media or other property accessible only by Yahoo! and for Yahoo!’s benefit (and will not take such any such actions prior to the Separation Date); and (I) other than in the normal course of performing your duties and/or responsibilities for Yahoo! and for Yahoo!’s benefit, you did not delete or wipe or attempt to delete or wipe Yahoo! Business Data that was contained on Company Property (and will not take such any such actions prior to the Separation Date). If you discover after the Separation Date that you have retained any proprietary or confidential information (including (without limitation) proprietary or confidential information contained in any electronic documents or email systems in your possession or control), you also agree immediately upon discovery to send an email to IPQuestionsSeparations@yahoo-inc.com and inform Yahoo! of the nature and location of the proprietary or confidential information that you have retained so that Yahoo! may arrange to remove, recover, and/or collect such information. The Severance Benefits and other benefits under this Agreement will not be paid or provided until all Company property has been returned to Yahoo!.

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17. Miscellaneous. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of Yahoo!. You may not make any changes to the terms of this Agreement unless that change is executed by you and Yahoo!. If you fail to comply with the terms of this Agreement (including (without limitation) paragraphs 13, 14, 15 and 16), you will be required to forfeit and repay (as applicable) all severance benefits and other consideration received. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable.

If this Agreement is acceptable to you, please sign below and return the original to Mini Khroad at: [Contact] or Yahoo!, 701 First Avenue, Sunnyvale, California 94089.

I wish you good luck in your future endeavors.

Sincerely,


YAHOO! INC.

By:		/s/ Marissa Mayer
		Marissa Mayer CEO, Yahoo! Inc.

Exhibit A – Waiver and Release of Claims

AGREED AND VOLUNTARILY EXECUTED:

/s/ Michael Barrett

Michael Barrett

10/26/2012

Date

cc:	Personnel File

Page 5

Exhibit A – Waiver and Release of Claims

1. Release of Claims. In consideration for, and as a condition of the severance benefits and other consideration as described in the attached separation agreement to which you are not otherwise entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively “Released Party”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Release. This general release is to the maximum extent permitted by law and includes (without limitation) the following: (A) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (B) all claims related to your compensation or benefits from the Company, including wages, salary, variable compensation, incentive payments, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including (without limitation) claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (E) all federal, state, and local statutory claims, including (without limitation) claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Worker Adjustment and Retraining Notification Act (as amended) and similar laws in other jurisdictions, the Employee Retirement Income Security Act of 1974 (as amended), the Family and Medical Leave Act of 1993, and the California Fair Employment and Housing Act (as amended) and similar laws in other jurisdictions. To the maximum extent permitted by law, you also promise never directly or indirectly to bring or participate in an action against any Released Party under California Business & Professions Code Section 17200 or under any other unfair competition law of any jurisdiction. If, notwithstanding the above, you are awarded any money or other relief under such a claim, you hereby assign the money or other relief to the Company. Your waiver and release specified in this paragraph do not apply to any rights or claims that may arise after the date you sign this Release, and does not constitute a waiver or release of any indemnification the Company is required to provide to you under applicable law or pursuant to the Company’s corporate by-laws or insurance policies. This Release includes a release of claims of discrimination and retaliation on the basis of workers’ compensation status, but does not include claims for workers’ compensation benefits. Excluded from this Release are any claims that by law cannot be waived in a private agreement between employer and employee including (without limitation) the right to file a charge with or participate in an investigation conducted by the Equal Employment Opportunity Commission (“EEOC”) or any state or local fair employment practices agency. You waive, however, any right to any monetary recovery or other relief should the EEOC or any other agency pursue a claim on your behalf.

2. Representations. You acknowledge and represent the following: (A) you have not suffered any age-related or other discrimination, harassment, retaliation, or wrongful treatment by any Released Party; (B) you have not been denied any rights including (without limitation) rights to a leave or reinstatement from a leave under the Family and Medical Leave Act of 1993, the Uniformed Services Employment and Reemployment Rights Act of 1994, or any similar law of any jurisdiction; and (C) you have no work related injuries that have not already been disclosed to Yahoo!. You also acknowledge and agree that you have been paid all wages due and that, as to any further alleged wages, you agree that there is a good-faith dispute as to whether such wages are due, and based on this good-faith dispute, you release and waive any and all further claims regarding any alleged unpaid wages and any corresponding penalties, interest, or attorneys’ fees, in exchange for the consideration provided in this Agreement

3. Release of Unknown Claims. You acknowledge that you have read and understand Section 1542 of the California Civil Code: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to your release of any unknown or unsuspected claims.

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4. ADEA Waiver. You agree that you are voluntarily executing this Release. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA and that the consideration given for the waiver and release is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing, as required by the ADEA, that: (A) your waiver and release specified in this paragraph do not apply to any rights or claims that may arise after the date you sign this Release; (B) you have been advised to consult with an attorney prior to signing this Release; (C) if part of a group termination, you have received a disclosure from the Company that includes a description of the class, unit or group of individuals covered by this employment termination program, the eligibility factors for such program, and any time limits applicable to such program and a list of job titles and ages of all employees selected for this group termination and ages of those individuals in the same job classification or organizational unit who were not selected for termination (“Disclosures”); (D) you have 21 days from the date that you receive this Release to consider this Release (although you may choose to sign it any time on or after your Separation Date); (E) you have seven days after you sign this Release to revoke it (“Revocation Period”); and (F) this Release will not be effective until you have returned it to Yahoo! (instructions below) and the Revocation Period has expired (the “Effective Date”). Do not sign this Release prior to the Separation Date.

If this Release is acceptable to you, please: sign below on or after the Separation Date and return the original to Mini Khroad at [Contact] or Yahoo!, 701 First Avenue, Sunnyvale, California 94089 by December 21, 2012.

AGREED AND VOLUNTARILY EXECUTED:

/s/ Michael Barrett

Michael Barrett

October 26, 2012

Date

cc:	Personnel File

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Marissa A. Mayer, certify that:

1.	I have reviewed this Form 10-Q of Yahoo! Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or 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;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Ken Goldman, certify that:

1.	I have reviewed this Form 10-Q of Yahoo! Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-32

EXHIBIT 32

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Yahoo! (the “Company”) for the quarter ended June 30, 2013 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 Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of her or his knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ MARISSA A. MAYER
Name:		Marissa A. Mayer
Title:		Chief Executive Officer
Dated:		August 8, 2013

		/s/ KEN GOLDMAN
Name:		Ken Goldman
Title:		Chief Financial Officer
Dated:		August 8, 2013

The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.