Use these links to rapidly review the document TABLE OF CONTENTS YANDEX N.V. INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 20-FCommission file number: 001-35173YANDEX N.V.(Exact name of Registrant as specified in its charter)N/A(Translation of Registrant's name in English)The Netherlands(Jurisdiction of incorporation or organization)Schiphol Boulevard 165Schiphol P7 1118 BG, The Netherlands(Address of principal executive offices)Arkady Volozh, Chief Executive OfficerSchiphol Boulevard 165Schiphol 1118 BG, The NetherlandsTelephone: +31 20-206-6970Facsimile: +31 20-446-6372Email: askIR@yandex-team.ru(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act.Title of each class Name of each exchange on whichregisteredClass A Ordinary Shares NASDAQ Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act. None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. Class A Ordinary Shares Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report.(1)(Mark One) o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934ORý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to ORo SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report Title of each class Number of sharesoutstandingClass A 267,970,405Class B 62,051,348 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934. Yes o No ý Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. 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 suchshorter 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 ý No o 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 toRule 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 ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of theExchange Act (check one): Indicate by check mark which basis of accounting the registrant has used to prepared the financial statements included in this filing: If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý(APPLICABLE ONLY TO ISSUERS INVOLVED INBANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court. Yes o No o (1)In addition, we had 8,919,063 Class C shares issued and fully paid as of December 31, 2014. Our Class C shares are issued from time to time solely for technical purposes, to facilitate the conversionof our Class B shares into Class A shares. They are held by a Conversion Foundation managed by members of our Board of Directors. For the limited period of time during which any Class C sharesare outstanding, they will be voted in the same proportion as votes cast by holders of our Class A and Class B shares, so as not to influence the outcome of any vote.Large accelerated filer ý Accelerated filer o Non-accelerated filer oU.S. GAAP ý International Financial Reporting Standards oas issued by the International AccountingStandards Board Other o Table of Contents TABLE OF CONTENTS In this Annual Report on Form 20-F (this "Annual Report"), references to "Yandex," the "company," "we," "us," or similar terms are to Yandex N.V. and, asthe context requires, its wholly owned subsidiaries. Our consolidated financial statements are prepared in accordance with U.S. GAAP and are expressed in Russian rubles. In this Annual Report, referencesto "rubles" or "RUR" are to Russian rubles, and references to "U.S. dollars" or "$" are to United States dollars. Our fiscal year ends on December 31 of each year. References to any specific fiscal year refer to the year ended December 31 of the calendar yearspecified. Page PART I. Item 1. Identity of Directors, Senior Management and Advisers N/A Item 2. Offer Statistics and Expected Timetable N/A Item 3. Key Information 3 Item 4. Information on the Company 43 Item 4A. Unresolved Staff Comments 70 Item 5. Operating and Financial Review and Prospects 70 Item 6. Directors, Senior Management and Employees 96 Item 7. Major Shareholders and Related Party Transactions 102 Item 8. Financial Information 107 Item 9. The Listing 107 Item 10. Additional Information 109 Item 11. Quantitative and Qualitative Disclosures About Market Risk 118 Item 12. Description of Securities other than Equity Securities N/A PART II. Item 13. Defaults, Dividend Arrearages and Delinquencies N/A Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 119 Item 15. Controls and Procedures 119 Item 16A. Audit Committee Financial Expert 122 Item 16B. Code of Ethics 122 Item 16C. Principal Accountant Fees and Services 122 Item 16D. Exemptions from the Listing Standards for Audit Committees N/A Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 123 Item 16F. Change in Registrant's Certifying Accountant 123 Item 16G. Corporate Governance 123 Item 16H. Mine Safety Disclosure N/A PART III. Item 17. Financial Statements — Item 18. Financial Statements F-1 Item 19. Exhibits — This Annual Report includes market data reported by comScore (December 2014), Liveinternet.ru (March 2015), Public Opinion Foundation of Russia(FOM) (January 2015), ZenithOptimedia (March 2015), Genius (December 2014), TNS (December 2014), and the Russian Federal State Statistics Service(Rosstat) (January 2015). Our search market share in Turkey is based on comScore qSearch data (December 2014).1 Table of Contents Forward-Looking Statements This Annual Report contains forward-looking statements that involve risks and uncertainties. Words such as "project," "believe," "anticipate," "plan,""expect," "estimate," "intend," "should," "would," "could," "will," "may" or other words that convey judgments about future events or outcomes indicate suchforward-looking statements. Forward-looking statements in this Annual Report may include statements about:•the impact of macroeconomic and geopolitical developments in our markets; •the expected growth of the internet search and advertising markets and the number of internet and broadband users in the countries in whichwe operate; •competition in the internet search market in the countries in which we operate; •our anticipated growth and investment strategies; •our future business development, results of operations and financial condition; •expected changes in our margins and certain cost or expense items in absolute terms or as a percentage of our revenues; •our ability to attract and retain users, advertisers and partners; and •future advertising supply and demand dynamics. The forward-looking statements included in this Annual Report are subject to risks, uncertainties and assumptions. Our actual results of operations maydiffer materially from those stated in or implied by such forward-looking statements as a result of a variety of factors, including those described under Part I,Item 3.D. "Risk Factors" and elsewhere in this Annual Report. We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can weassess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially fromthose contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.2 Table of Contents PART I. Item 3. Key Information. A. Selected Consolidated Financial and Statistical Data The selected consolidated statements of income data for the years ended December 31, 2012, 2013 and 2014 and the selected consolidated balance sheetdata as of December 31, 2013 and 2014 are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report. Theselected consolidated balance sheet data as of December 31, 2011 and 2012 and consolidated statements of income data for the years ended December 31,2010 and 2011 are derived from our audited consolidated financial statements that are not included in this Annual Report. The selected consolidated balancesheet data as of December 31, 2010 are derived from our unaudited consolidated balance sheet as re-presented for the reclassification of Yandex.Money'sbalances into assets held for sale and liabilities related to assets held for sale to reflect current period presentation. When we represented the consolidatedbalance sheet as of December 31, 2010, we did not have it re-audited. Ruble amounts have been translated into U.S. dollars at a rate of RUR 56.2584 to $1.00, the official exchange rate quoted as of December 31, 2014 bythe Central Bank of the Russian Federation. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually havebeen purchased upon exchange of Russian rubles at the dates indicated, and have been provided solely for the convenience of the reader. On April 28, 2015,the exchange rate was RUR 51.4690 to $1.00. See "Risk Factors—The depreciation of the Russian ruble has and may continue to materially adversely affectour business, financial condition and results of operations." The following selected consolidated financial data should be read in conjunction with our "Operating and Financial Review and Prospects" and ourconsolidated financial statements and the related notes appearing elsewhere in this Annual Report. Our financial statements are prepared in3 Table of Contentsaccordance with U.S. GAAP. These historic financial results are not necessarily indicative of the results to be expected in any future period.4 Year ended December 31, 2010 2011 2012 2013 2014 RUR RUR RUR RUR RUR $ (in millions, except share and per share data) Consolidated statements ofincome data: Revenues: 12,500 20,033 28,767 39,502 50,767 902.4 Operating costs andexpenses: Cost of revenues(1) 2,585 4,707 7,188 10,606 14,336 254.8 Product development(1) 2,073 3,124 4,274 5,827 8,842 157.2 Sales, general andadministrative(1) 1,838 3,294 4,900 6,537 7,782 138.3 Depreciation andamortization 1,181 1,874 2,951 3,695 4,484 79.7 Total operating costs andexpenses 7,677 12,999 19,313 26,665 35,444 630.0 Income from operations 4,823 7,034 9,454 12,837 15,323 272.4 Interest income 156 222 1,002 1,717 856 15.2 Other income, net(2) 24 62 118 2,159 6,296 111.9 Net income before incometaxes 5,003 7,318 10,574 16,713 22,475 399.5 Provision for income taxes 1,186 1,545 2,351 3,239 5,455 97.0 Net income 3,817 5,773 8,223 13,474 17,020 302.5 Net income per Class A andClass B share: Basic 12.56 18.30 25.21 41.25 53.30 0.95 Diluted 12.37 17.59 24.50 40.27 52.27 0.93 Weighted average numberof Class A and Class Bshares outstanding: Basic 303,817,388 315,541,639 326,210,948 326,657,778 319,336,782 319,336,782 Diluted 308,580,600 328,155,087 335,690,596 334,571,212 325,610,277 325,610,277 (1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share-based compensationexpense of: 2010 2011 2012 2013 2014 RUR RUR RUR RUR RUR $ Cost of revenues 16 26 33 61 101 1.8 Product development 87 153 221 435 780 13.9 Sales, general andadministrative 57 150 122 258 329 5.8 (2)A major component of other income, net is foreign exchange gains and losses generally resulting from changes in the value of the U.S.dollar compared with the Russian ruble. Because the functional currency of our operating subsidiaries in Russia is the Russian ruble,changes in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies (primarily U.S.dollar-denominated cash, cash equivalents and term deposits maintained in Russia) due to exchange rate Table of ContentsExchange Rate Information Our business is primarily conducted in Russia and almost all of our revenues are denominated in Russian rubles. We have presented our most recentannual results of operations in U.S. dollars for the convenience of the reader. Unless otherwise noted, all conversions from RUR to U.S. dollars and from U.S.dollars to RUR in this Annual Report were made at a rate of RUR 56.2584 to $1.00, the official exchange rate quoted by the Central Bank of the RussianFederation as of December 31, 2014. On April 28, 2015, the exchange rate was RUR 51.4690 to $1.00. Such U.S. dollar amounts are not necessarilyindicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of Russian rubles at the dates indicated.5fluctuations are recognized as foreign exchange gains or losses in our income statement. For example, in 2014, other income includesRUR 6,518 million of foreign exchange gains arising from the appreciation of the U.S. dollar compared to the Russian ruble in thatyear. Although the U.S. dollar value of our U.S. dollar-denominated cash, cash equivalents and term deposits was not impacted by thisappreciation, it resulted in an upward re-valuation of the ruble equivalent of these U.S. dollar-denominated monetary assets. Similarly,in periods where the U.S. dollar depreciates compared to the Russian ruble, we incur foreign exchange losses resulting from thedownward revaluation of these assets. Other income also includes other non-operating gains and losses. In 2013, other incomeincluded a RUR 2,035 million gain from our sale of a 75% (less one ruble) interest in Yandex.Money to Sberbank. As of December 31 2010 2011 2012 2013 2014 RUR RUR RUR RUR RUR $ (in millions) Consolidated balance sheetdata(1): Cash and cash equivalents 3,025 5,930 7,425 33,394 17,645 313.6 Term deposits (current andnon-current) 3,289 7,133 14,959 15,180 31,526 560.4 Total assets 12,617 34,076 44,285 71,311 94,924 1,687.3 Total current liabilities 2,937 4,711 6,682 6,915 9,796 174.1 Total non-currentliabilities(2) 65 412 556 17,799 29,392 522.5 Total shareholders' equity 9,615 28,953 37,047 46,597 55,736 990.7 (1)Prior periods have been reclassified to reflect current period presentation. Balances related to assets held for sale (note 4 to ourconsolidated financial statements) are reclassified from their historical presentation to assets held for sale and liabilities related toassets held for sale. (2)The total non-current liabilities as of December 31, 2013 and December 31, 2014, mainly result from the convertible bond offering.Please refer to note 11 to our consolidated financial statements. Table of Contents The following table presents information on the exchange rates between RUR and the U.S. dollar for the periods indicated as quoted by the Central Bankof the Russian Federation: See "Risk Factors—The depreciation of the Russian ruble has and may continue to materially adversely affect our business, financial condition andresults of operations" for a discussion of the foreign currency exchange rate risks and uncertainties our business faces.6 RUR per U.S. dollar Period Period-end Average Low High 2010 30.48 30.37 31.78 28.93 2011 32.20 29.39 32.68 27.26 2012 30.37 31.09 34.04 28.95 2013 32.73 31.85 33.47 29.93 2014 56.26 38.42 67.79 32.66 October 2014 43.39 40.77 43.39 39.38 November 2014 49.32 45.91 49.32 41.96 December 2014 56.26 55.54 67.79 49.32 January 2015 68.93 61.88 68.93 56.24 February 2015 61.27 64.68 69.66 60.71 March 2015 58.46 60.26 62.68 56.43 Table of ContentsB. Risk Factors Investing in our Class A shares involves a high degree of risk. The risks and uncertainties described below and elsewhere in this Annual Report,including in the section headed "Operating and Financial Review and Prospects", could materially adversely affect our business. These are not the onlyrisks that we face; additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factorsthat affect us. Any of these risks could adversely affect our business, financial condition and results of operations. In such case, the trading price of ourClass A shares could decline.Risks Related to the Russian EconomyGeopolitical and macroeconomic events have adversely affected and created uncertainty and instability in the Russian economy, which could harm ourbusiness, financial condition and results of operations. In 2014 and early 2015, Russia has experienced an economic downturn that has been characterized by substantial depreciation of its currency, sharpfluctuations of interest rates, a forecasted decline in the gross domestic product in 2015, a steep decline in the value of shares traded on its stock exchanges,and a material increase in the inflation rate. The Russian economy is particularly sensitive to the price of oil, and recent substantial decreases in oil priceshave adversely affected and may continue to adversely affect its economy. In addition, international sanctions have been imposed on identified parties andbusiness sectors in Russia in connection with the geopolitical situation in Ukraine, as described below. See "—The current geopolitical conflict in Ukraineand related international economic sanctions may continue to adversely affect the Russian economy and the value of investments in Russia, and could harmour business, financial condition and results of operations." In 2014, the Russian ruble depreciated against the US dollar by 42%. During the period from January 1, 2015 to April 28, 2015, the value of the Russianruble appreciated against the US dollar by approximately 9% to RUR 51.5 to $1.00. See "—The depreciation of the Russian ruble has and may continue tomaterially adversely affect our business, financial condition and results of operations." On December 11, 2014, the Central Bank of Russia raised its key rate to 10.5%, followed by a further sharp increase on December 16, 2014 to 17%. Therate was reduced by 2 percentage points in February 2015, and a further 1 percentage point in March 2015, and remains at 14% as of April 28, 2015. Furthervolatility of interest rates may also adversely affect our ability to borrow funds if necessary or desirable. On January 26, 2015, the global credit ratings agency Standard & Poor's (S&P) downgraded Russia's sovereign debt to "junk" status. S&P lowered itslong- and short-term foreign currency sovereign credit ratings on the Russian Federation to non-investment grade BB+ from investment grade BBB–. OnFebruary 20, 2015, Moody's Investor Service downgraded Russia's government bond and local currency ratings one notch to Ba1, from Baa3, and retained anegative outlook. Fitch Ratings, the only remaining large credit rating agency to do so, still rates Russia in the investment grade category, albeit at the lowestpossible level in this rating and with a negative outlook. The outlook for long-term ratings is considered negative. Further declines in the oil price or otherdeterioration of the geopolitical situation may lead to further depreciation of the ruble and may lead to the Russia's sovereign credit rating being furtherdowngraded by credit agencies. The slowdown of the Russian economy in recent periods has adversely affected our results of operations. The medium-term outlook for the Russianeconomy is unsettled, and continued deterioration of the economic situation would likely further adversely affect the profitability of our business. As a resultof the current economic instability and any further potential deterioration in the Russian economy, total advertising spending in Russia may decrease which,in turn, could materially adversely affect our operating results. See "—We generate almost all of our revenues from advertising,7 Table of Contentswhich is cyclical in nature, and any reduction in spending by or loss of advertisers would materially adversely affect our business, financial condition andresults of operations."The current geopolitical conflict in Ukraine and related international economic sanctions may continue to adversely affect the Russian economy and thevalue of investments in Russia, and could harm our business, financial condition and results of operations. Significant uncertainty exists surrounding the current geopolitical situation in Ukraine. The United States, the European Union and certain othercountries have imposed economic sanctions on certain Russian government officials, private individuals and Russian companies, as well as "sectoral"sanctions affecting specified types of transactions with named participants in certain industries, including named Russian financial institutions, andsanctions that prohibit most commercial activities of U.S. and E.U. persons in Crimea and Sevastopol. There is significant uncertainty regarding the extent ortiming of any potential further economic or trade sanctions, or the ultimate outcome of the Ukrainian crisis. Political and economic sanctions may affect theability of our international customers to operate in Russia, which could negatively impact our revenue and profitability. Sanctions could also impede ourability to effectively manage our legal entities and operations in and outside of Russia. We are domiciled in the Netherlands, while our wholly ownedprimary operating subsidiary is organized under the laws of the Russian Federation, and several of our other subsidiaries are incorporated in other countriesthat have imposed economic sanctions. Although neither our parent company nor our operating subsidiaries are targets of sanctions, our business has beenadversely affected by the impact of sanctions on the broader economy in Russia. Political, civil or military conflicts between Russia and other countries could also negatively affect economies in the region, including the Russianeconomy. This, in turn, may result in a general lack of confidence among international investors in the region's economic and political stability and inRussian investments generally. Along with potential official government sanctions on Russia, U.S. and foreign investors may be pressured to reduce orwithdraw their investments in Russia. Such circumstances may result in trading volatility, reduced liquidity and significant declines in the price of listedsecurities of companies with significant operations in Russia, including our Class A shares.The depreciation of the Russian ruble has and may continue to materially adversely affect our business, financial condition and results of operations. The value of the Russian ruble has declined materially against the U.S. dollar in recent periods. The exchange rate quoted by the Central Bank of Russiaas of December 31, 2014 was RUR 56.3 to $1.00. During the period from January 1, 2015 to April 28, 2015, the value of the Russian ruble appreciated toRUR 51.5 to $1.00. Although our revenues and expenses are both primarily denominated in Russian rubles, the majority of our rent expenses, including the lease for ourMoscow headquarters, are denominated in U.S. dollars. Additionally, a major portion of our capital expenditures, primarily for servers and networkingequipment, although payable in rubles, are for imported goods and therefore can be materially affected by changes in the value of the ruble. Moreover, theconsideration we have paid in connection with a number of our acquisitions of other businesses to date has been, and future acquisition consideration maybe, denominated and paid in U.S. dollars. If the Russian ruble were to experience a prolonged and significant decline in value against foreign currencies, wecould face material foreign currency exchange exposure, which may materially adversely affect our business, financial condition and results of operations.See "Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures about Market Risk."8 Table of ContentsRisks Related to Our Business and IndustryWe face significant competition from major global and Russian internet companies, including Google and Mail.ru, which could negatively affect ourbusiness, financial condition and results of operations. We face strong competition in various aspects of our business from global and Russian companies that provide internet search and other online servicesand content. Currently, we consider our principal competitors to be Google and Mail.ru. Of the large global internet companies, we consider Google to be our principal competitor in the market for desktop and mobile internet search, and fortext-based advertising, online advertising network, advertising intermediary services, distribution arrangements and other services. According toLiveinternet.ru Google's share of the Russian search market, based on search traffic generated, was 33.6% for March 2015 and 29.3% for the full year 2014,compared with our market share of 58.0% and 60.9%, respectively. Google launched its Russian-language search engine in 2001, and opened its first officein Russia and introduced Russian-language morphology-based search capabilities in 2006. It conducts extensive online and offline advertising campaigns inRussia. In recent periods, Google has also aggressively marketed its Chrome browser in Russia, and has taken steps to attempt to ensure that its search engineis the default search function on its browser, which has created increased competition. With Android, its popular mobile platform, Google exerts significant influence over the increasingly important market for mobile and location-basedsearch and advertising, including through its global arrangements with manufacturers of mobile devices and network operators to preinstall on an exclusivebasis a set of Google's mobile applications. See also "—The competition to capture market share on mobile devices is intense and if we are not successful inoffering, achieving substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and resultsof operations could be adversely affected." We expect that Google will continue to use its brand recognition and global financial and engineering resourcesto compete aggressively with us. In addition to Google, we also face competition, albeit less intense, from the Russian and international websites of Microsoftand Yahoo!. On the domestic side, our principal competitor is Mail.ru. Although we power paid search on Mail.ru properties, we also compete with Mail.ru in themarket for display advertising and other services. Mail.ru offers a wide range of internet services, including the most popular Russian web mail service, andmany other services that are comparable to ours. Mail.ru's search market share was 8.6% and 7.3% in the full years 2013 and 2014 respectively. We alsocompete with Russian online advertising networks, such as Begun, which serve advertising to a number of popular Russian websites. Although we have partnerships with a number of social networking sites, such as Facebook, Twitter, Vkontakte, Odnoklassniki and My World, and serveads on some of these sites, we also view them as increasingly significant competitors. Such sites provide users with a wide range of information and servicessimilar to those we offer, including search, real-time news and location-based information and updates. These sites derive a substantial portion of theirrevenues from online advertising and are experimenting with innovative ways of monetizing user traffic. In light of their large audiences and the significantamount of information they can access and analyze regarding their users' needs, interests and habits, we believe that they may be able to offer highly targetedadvertising that could create increased competition for us. The popularity of such sites may also reflect a growing shift in the way in which people findinformation, get answers and buy products, which may create additional competition to attract users. We also compete with other destination websites, whichare sites that users access primarily for content rather than search, that seek to increase their search-related traffic, as well as established companies and start-ups that are developing search technologies and other internet services. We cannot guarantee that we will be able to continue to compete effectively with current and future internet companies that may have greater ability toattract and retain users, greater name9 Table of Contentsrecognition, more personnel and greater financial and other resources. If our competitors are successful in providing similar or better search results and otherinternet services compared with those we offer, we could experience a significant decline in user traffic. Any such decline in traffic could negatively affectour business, financial condition and results of operations.The competition to capture market share on mobile devices is intense and if we are not successful in offering, achieving substantial reach among users andmonetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected. Users are increasingly accessing the internet through mobile and other devices rather than desktop and laptop personal computers, including throughmobile phones, smartphones, and handheld computers such as netbooks and tablets, as well as through video game consoles, and television set-top devices.Such devices have different characteristics than desktop and laptop personal computers (including screen size, operating system, user interface and usepatterns). Tailoring our products and services to such devices requires particular expertise and the expenditure of significant resources. The versions of ourproducts and services developed for these devices, including the advertising solutions we offer, may be less attractive to users, advertisers, manufacturers ordistributors of devices than those offered by our competitors or than our desktop offerings. The percentage of our total search traffic that was generated frommobile devices increased from approximately 16% in the fourth quarter of 2013 to approximately 24% in the fourth quarter of 2014, while the percentage ofour total revenues generated from mobile devices increased from approximately 12% to approximately 18% between those periods. Each manufacturer or distributor may establish unique technical standards for its devices, and as a result our products and services may not work or beviewable on these devices. Some manufacturers may also elect not to include our products on their devices, or may be prohibited from doing so pursuant totheir agreements with other parties. In February 2015, we made a formal request to the Russian Federal Antimonopoly Service ("FAS") to open aninvestigation into whether Google is using its dominant position to promote its search and other services bundled into a single package imposed for pre-installation by device manufacturers, as well as employing exclusive dealing and other restrictive practices to increase its search market share and ensureubiquity of its other services on Android-operated devices. Our share of searches on the Android platform in Russia decreased from approximately 52% in thefourth quarter of 2013 to approximately 44% in the fourth quarter of 2014. The FAS has opened an investigation based on our request. There is no assuranceas to the outcome of this investigation. Moreover, even if the outcome of this investigation is favorable, we may not succeed in maintaining or materiallyincreasing our market share on mobile devices. In addition, consumers are increasingly accessing content directly via "apps" tailored to particular mobile devices or in closed social media platforms,which could affect our share of the search market over time. As new devices and platforms are continually being released, it is difficult to predict thechallenges we may encounter in adapting our products and services and developing competitive new products and services. See also "—As the internetevolves, an increasing amount of online content may be held in closed social networks or stored in proprietary document formats, which may limit theeffectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations." We expect to continue to devote significant resources to the creation, support and maintenance of mobile products and services. If we are unable toattract and retain a substantial number of device manufacturers, distributors and users to our products and services, or if we are slow to develop products andtechnologies that are more compatible with such devices and platforms, we will fail to capture the opportunities available as consumers and advertiserstransition to a dynamic, multi-screen environment. Furthermore, given the importance of distribution and application pre-installation arrangements with themost popular device manufacturers for successful operation of our business,10 Table of Contentsfailure to reach such arrangements may adversely affect our business, financial condition and results of operations.We generate almost all of our revenues from advertising, which is cyclical in nature, and any reduction in spending by or loss of advertisers wouldmaterially adversely affect our business, financial condition and results of operations. In the past three years, we generated on average more than 98% of our revenues from advertising. Expenditures by advertisers tend to be cyclical,reflecting overall economic conditions and budgeting and buying patterns, and can therefore fluctuate significantly. During the 2008/2009 global economiccrisis, total advertising spending in Russia declined by 28% in ruble terms, from 2008 to 2009, while the growth in online advertising expenditures slowed,according to the Association of Russian Communication Agencies (AKAR). As a result of the current economic slowdown, the rate of growth in onlineadvertising expenditures slowed materially in 2014, down from a growth rate of 27% from 2012 to 2013 to 18% from 2013 to 2014. In 2015, ZenithOptimedia forecasts online advertising expenditures to grow 5%. The table below provides annual online and total advertising expenditures in Russia from2007 to 2014: Although forecasts for online advertising spending in Russia indicate sustained annual growth through 2017, we anticipate that the rate of such growthwill decelerate. Any decreases or delays in online advertising spending due to economic conditions, or otherwise, would materially adversely impact ourbusiness, financial condition and results of operations. Additionally, recent decreases in international oil prices may continue to adversely affect the Russianeconomy. The current economic slowdown in Russia, and any further potential deterioration, may adversely affect total advertising spending in Russia,which, in turn, would materially adversely affect our operating results for 2015 and in the medium-term. See also "—Geopolitical and macroeconomic eventshave adversely affected and created uncertainty and instability in the Russian economy, which could harm our business, financial condition and results ofoperations."Distribution arrangements with third parties are an important avenue for expanding our user base, and any failure to obtain or maintain suchrelationships on reasonable terms could have an adverse effect on our business, financial condition and results of operations. To expand our user base and increase traffic to our sites and mobile applications, we enter into arrangements with leading software companies and devicemanufacturers for the distribution of our services and technology. In particular, we have agreements, on a co-marketing basis, with certain internet browsers.In addition, several mobile device manufacturers include Yandex as the default search engine on certain Windows-based models of handsets in Russia. Asnew methods for accessing the internet become available, including through new digital platforms and devices, we may need to enter into new or amendeddistribution agreements. See also "—The competition to capture market share on mobile devices is intense and if we are not successful in offering, achievingsubstantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations couldbe adversely affected."11 2007 2008 2009 2010 2011 2012 2013 2014 (RUR in billion) Online advertising expenditures 12.7 17.6 19.1 26.7 41.8 56.3 71.7 84.6 Growth rate 105% 39% 9% 40% 57% 35% 27% 18%Total advertising expenditures 235.5 295.8 215.0* 250.0* 263.4 297.8 327.8 340.1 Growth rate 28% 26% (27)% 16% 5% 13% 10% 4%*AKAR's revised estimates of the advertising expenditures for historical periods. Table of Contents Our largest distribution partners in 2014 were Opera, which offers mobile and desktop browsers, and Mozilla, which includes our search as the default inits Firefox browser. If we are unable to continue our arrangements with Opera or Mozilla, or enter into comparable arrangements with new distributionpartners, particularly for the distribution of our search and other services on mobile devices, this would likely have a negative effect on our search marketshare over time. In the future, existing and potential distribution partners may not offer or renew distribution arrangements on reasonable terms for us, or atall, which could limit our ability to maintain and expand our user base, and could have a material adverse effect on our business, financial condition andresults of operations.Our users can switch at any time to our competitors at no cost. If we do not continue to innovate and provide services that are useful and attractive to ourusers, we may be unable to retain them and may become less attractive to our advertisers, which could adversely affect our business, financial conditionand results of operations. Our success depends on providing search and other services that make using the internet a more useful and enjoyable experience for our users. Ourcompetitors continuously develop innovations in search and other services, as well as online advertising services. As search technology continues todevelop, our competitors may be able to offer search capabilities that are, or that are seen to be, substantially similar to or better than ours. This may force usto compete in different ways and expend significant resources to remain competitive. If we are unable to continue to develop and provide our users with quality, up-to-date services, and to appropriately time them with market opportunities,or if we are unable to maintain the quality of such services, our user base may not grow, or may decline. Further, if we are unable to attract and retain asubstantial share of internet traffic generated by mobile and other digital devices, or if we are slow to develop services and technologies that are compatiblewith such devices, our user base may not grow or may decline. If our users move to our competitors, we will also become less attractive to advertisers and therefore to Yandex ad network partners. This could adverselyaffect our business, financial condition and results of operations.We expect the rate of growth of our revenues to be lower in the future and we may experience downward pressure on our operating margin. The effectiveness of text-based advertising as a medium has contributed to the rapid growth of our business since our inception. Advertising spendingcontinues to shift from offline to online as the internet evolves and we expect that our business will continue to grow and further benefit from that shift.However, we expect that our revenue growth rate will continue to decline over time as a result of a number of factors, including continuing macroeconomicchallenges in Russia, challenges in maintaining our growth rate as our revenues increase to higher levels, increasing competition, changes in the nature ofqueries, the evolution of the overall online advertising market and the declining rate of growth in the number of internet users in Russia as overall internetpenetration increases. Other factors which may cause our operating margin to fluctuate or decline are:•changes in the proportion of our advertising revenues that we derive from the Yandex ad network compared with our own websites. In periodsin which our Yandex ad network revenues grow more rapidly than those from our own sites, our operating margin generally declines becausethe operating margin we realize on revenues generated from partner websites is significantly lower than the operating margin generated fromour own websites. The margin we earn on revenue generated from the Yandex ad network could also decrease in the future if we are required toshare with our partners a greater percentage of the advertising fees generated through their websites;12 Table of Contents•increased depreciation and amortization expense related to recent capital expenditures for many aspects of our business, particularly theexpansion of our data centers to support growth in both our current and new markets; •relatively higher spending on advertising and marketing to further enhance our brand and promote our services in Russia, to build and expandbrand awareness in Turkey and other countries where we operate and to respond to competitive pressures, if these efforts do not drive revenuegrowth in the manner we anticipate; •expenses in connection with the launch of new products and related advertising and marketing efforts, which may not result in the anticipatedincrease in revenues or market share; •the possibility of higher fees or revenue sharing arrangements with our distribution partners that distribute our products or services orotherwise direct search queries to our website. We expect to continue to expand the number of our distribution relationships in order toincrease our user base and to make it easier for our existing users to access our services; •costs incurred in our international expansion efforts until we succeed in building the user base necessary to begin generating sufficientrevenues in these markets to earn accretive operating margins there; and •increased costs associated with the creation, support and maintenance of mobile products and services to maintain and expand our offeringand competitive market position, which may not result in anticipated increases in revenues or market share. See "Operating and Financial Review and Prospects—Key Trends Impacting Our Results of Operations."As the Russian internet market matures, our future expansion will increasingly depend on our ability to generate revenues from new business models or inother markets. As internet usage has spread in Russia, the rate of growth has been declining. The number of users increased by 17% from the fall of 2010 to the fall of2011, 12% from the fall of 2011 to the fall of 2012, 9% from the fall of 2012 to the fall of 2013, and 9% from the fall of 2013 to the fall of 2014, according tothe Public Opinion Foundation of Russia, or FOM. As our core market matures, we will need to provide new services, further exploit new business models,such as e-commerce, or expand into new geographic markets in order to continue to grow our revenues at previously achieved levels. For example, we haverecently launched our Yandex.Data Factory and Yandex.Taxi services to expand our revenue base. Our efforts in this regard may not be successful, whichwould adversely affect our business, financial condition and results of operations.We rely on our Yandex ad network partners for a material portion of our revenues and benefit from our relationships with them. If we lose these partners,or the quality of these partners decreases, it would adversely affect our business, financial condition and results of operations. Revenues from advertising on our ad network partner websites represented 23.7% of our text-based and display advertising revenues in 2014 and 20.8%in 2013. This increase reflects in part the impact of our agreement to power paid search results on Mail.ru, which we entered into in July 2013. We considerour ad partner network to be important for the continued growth of our business. Our agreements with our network partners, other than our agreement topower paid search results on Mail.ru, are generally terminable at any time without cause. Our competitors could offer more favorable terms to our current orpotential network partners, including guaranteed minimum revenues or other more advantageous revenue-sharing arrangements, in an effort to take marketshare away from us. Additionally, some of our partners in the Yandex ad network, such as Mail.ru and Microsoft Bing, compete with us in one or more areasand may terminate their agreements with us in order to13 Table of Contentsdevelop their own businesses. If our network partners decide to use a competitor's advertising services, our revenues would decline. Many of our key network partners operate high-profile websites, and we derive tangible and intangible benefits from this affiliation, such as increasednumbers of users, extended brand awareness and greater audience reach for our advertisers. If our agreements with any of these partners are terminated or notrenewed and we do not replace those agreements with comparable agreements, our business, financial condition and results of operations would be adverselyaffected. The number of paid clicks and amount of revenues that we derive from our partners in the Yandex ad network depends on, among other factors, thequality of their websites and their attractiveness to users and advertisers. Although we screen new applicants, favor websites with high-quality content andstable audiences, and strive to monitor the quality of the network partner websites on an ongoing basis, these websites are operated by independent thirdparties that we do not control. If our network partners' websites deteriorate in quality or otherwise fail to provide interesting and relevant content and servicesto their users, this may result in reduced attractiveness to their users and our advertisers, which may adversely impact our business, financial condition andresults of operations.Our business depends on a strong brand, and failing to maintain and enhance our brand would harm our ability to expand our base of users, advertisersand network partners and would materially adversely affect our business, financial condition and results of operations. We believe that the brand identity that we have developed through the strength of our technology and our user focus has significantly contributed to thesuccess of our business. We also believe that maintaining and enhancing the Yandex brand, including through continued significant marketing efforts, iscritical to expanding our base of users, advertisers, advertising network partners, and other business partners. Maintaining and enhancing our brand,especially in relation to mobile services, will depend largely on our ability to continue to be a technology leader and a provider of high-quality, reliableservices, which we may not continue to do successfully. Our Yandex.Money business now operates through a joint venture with Sberbank. Although we have sought to implement appropriate controls andprotections, as the minority partner in this legal entity we may have limited ability to ensure that the business is always operated in a manner that isconsistent with the broader Yandex brand. If we or our partner fail to maintain and enhance the Yandex brand, or if we incur excessive expenses in our efforts to do so, our business, financialcondition and results of operations would be materially adversely affected.We spend significant resources expanding and enhancing our service offerings, and if these new or enhanced services are not widely adopted by users, ourbusiness, financial condition and results of operations could be adversely affected. We continuously work to develop new and enhanced services to broaden and improve the overall quality of our service offerings. The cost we incur inthese efforts, both in terms of product development expenses and advertising and marketing costs, can be significant. For instance, we incurred considerabledevelopment and marketing expenses in connection with launching our Yandex.Browser in the second half of 2012 and throughout 2013. OurYandex.Browser has been gaining market share and, in March 2015 had a 7.9% share of the desktop browser market in terms of visitors (unique cookies) and12.9% of the mobile browser market in terms of traffic in Russia, according to Liveinternet.ru. There is strong competition in the browser market and wecannot guarantee that our browser's market share will continue to grow or maintain its current position. If our new or enhanced services are not widelyadopted by users, our business, financial condition and results of operations could be adversely affected.14 Table of ContentsIf we fail to manage effectively the growth of our operations, our business, financial condition and results of operations could be adversely affected. We have experienced, and continue to experience, continuous growth in our operations, which has placed, and will continue to place, significantdemands on our management and our operational and financial infrastructure. In addition, in the current macroeconomic environment we have madereductions in our staff and may further reduce or limit the expansion of our staff, which would require us to manage our operational growth with fewer people.We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we seek to achieve. If we do noteffectively manage our growth, the quality of our services could suffer, which could adversely affect our brand, business, financial condition and results ofoperations. As our user and advertiser bases expand, we will need to continue to increase our investment in technology, infrastructure, facilities and other areas ofoperations, in particular product development, sales and marketing. As a result of such growth, we will also need to continue improving our operational andfinancial systems and managerial control and procedures. We will have to maintain close coordination among our technical, accounting, finance, marketingand sales personnel. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and we may have to makesignificant additional expenditures, which could harm our business, financial condition and results of operations.Our corporate culture has contributed to our success, and if we cannot maintain the focus on teamwork and innovation fostered by this environment, ourbusiness, financial condition and results of operations would be adversely affected. We believe that a critical contributor to our success has been our corporate culture, which values and fosters teamwork and innovation. As our businessmatures, and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain thebeneficial aspects of our corporate culture. This would adversely affect our business, financial condition and results of operations.The loss of any of our key personnel or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business,financial condition and results of operations. Our success depends in large part upon the continued service of key members of our management team and technical personnel, as well as our continuedability to attract, retain and motivate other highly qualified engineering, programming, technical, sales, customer support, financial and managerialpersonnel. Although we attempt to structure employee compensation packages in a manner consistent with the evolving standards of the markets in which weoperate and to provide incentives to remain with Yandex, including equity awards under our employee incentive plan, we cannot guarantee that we will beable to retain our key employees. A number of our senior employees exercised share options in connection with our initial public offering and madesignificant gains, while a significant portion of our outstanding equity awards held by key employees have become, or will soon become, substantiallyvested. Although we grant additional equity awards to management personnel and other key employees from time to time, employees may be more likely toleave us after their initial award fully vests, especially if our shares have significantly appreciated in value relative to the exercise price. If any member of oursenior management team or other key personnel should leave our group, our ability to successfully operate our business and execute our business strategycould be impaired. We may also have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees.15 Table of Contents The competition for software engineers and qualified personnel who are familiar with the internet industry in Russia is intense. We may encounterdifficulty in hiring and/or retaining highly talented software engineers to develop and maintain our services. There is also significant competition forpersonnel who are knowledgeable about the accounting and legal requirements related to a NASDAQ listing, and we may encounter particular difficulty inhiring and/or retaining appropriate financial staff needed to enable us to continue to comply with the internal control requirements under the Sarbanes-OxleyAct and related regulations. Any inability to successfully retain key employees and manage our personnel needs may have a material adverse effect on our business, financialcondition and results of operations.Growth in our operations internationally may create increased risks that could adversely affect our business, financial condition and results of operations. We have limited experience with operations outside Russia, and in 2014 derived only approximately 9% of our revenues from advertisers outside Russia.Part of our future growth strategy is to expand our operations geographically on an opportunistic basis. Our geographic expansion efforts generally requirethe expenditure of significant costs in the new geography prior to achieving the market share necessary to support the commercialization of our services,which allows us to begin generating revenues in the new geography. For example, in 2011 we launched operations in Turkey. In December 2014, our share ofthe internet search market in Turkey was 4.2% according to comScore qSearch, and we have generated only nominal revenues there to date. Our ability tomanage our business and conduct our operations across a broader range of geographies will require considerable management attention and resources and issubject to a number of risks relating to international markets, including the following:•challenges caused by distance, language and cultural differences; •managing our relationships with local partners should we choose to adopt a joint venture approach in our international expansion efforts; •credit risk and higher levels of payment fraud in certain countries; •pressure on our operating margins as we invest to support our expansion; •currency exchange rate fluctuations and our ability to manage our currency exposure; •foreign exchange controls that might prevent us from repatriating cash earned in certain countries; •legal risks, including potential of claims for infringement of intellectual property and uncertainty regarding liability for online services andcontent; •adoption of new legislation and regulations, which may adversely impact our operations or may be applied in an unpredictable manner; •potentially adverse tax consequences; •deleterious changes in political environment; and •higher costs and greater management time associated with doing business internationally. In addition, compliance with complex and potentially conflicting foreign and Russian laws and regulations that apply to our international operationsmay increase our cost of doing business and may interfere with our ability to offer, or prevent us from offering, our services in one or more countries. Thesenumerous laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, economic sanctions, internal anddisclosure control rules, data protection, data retention, privacy and filtering requirements, labor relations laws, U.S. laws, such as the Foreign CorruptPractices Act, and local laws prohibiting corrupt payments to governmental officials. Violations16 Table of Contentsof these laws and regulations may result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business;and damage to our reputation. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot assure youthat our employees, contractors or agents will not violate our policies. Any such violations may result in prohibitions on our ability to offer our services inone or more countries, and may also materially adversely affect our reputation, our brand, our international expansion efforts, our ability to attract and retainemployees, and our business, financial condition and results of operations.Financial results for any particular period are not necessarily indicative of results for future periods. Our historical results of operations may not be useful in predicting our future results. Our results of operations may fluctuate from period to period as aresult of any of the risk factors described in this Annual Report and, in particular, due to:•economic conditions generally and those specific to the internet and online advertising, both in Russia and globally; •geopolitical developments; •fluctuations in the exchange rate between the Russian ruble and the U.S. dollar; •the level of use of internet search engines to find information; •the amount of advertising purchased and market prices for online advertising; •the volume of searches conducted, the amounts bid by advertisers or the number of advertisers that bid in our advertising system; •our ability to compete effectively for users, advertisers, partner websites and content; •the proportion of our revenues generated on our websites relative to those generated through the Yandex ad network or through distributionpartners, as a result of the revenue-sharing arrangements we enter into and the overall volume of advertising we provide to our partners; and •the legal framework applicable to regulation of online businesses in Russia and globally.Due to the seasonal nature of advertising spending, future results of our operations may fluctuate from period to period and from quarter to quarter, whichmay cause our share price to decline. Advertising spending and user traffic tend to be seasonal, with internet usage, online spending and traffic historically slowing down during January, Mayand June and increasing significantly in the fourth quarter of each year. For these reasons, comparing our results of operations on a period-to-period basis maynot be meaningful, and past results should not be relied upon as an indication of future performance. Quarterly and annual expenses as a percentage ofrevenues may be significantly different from historical or projected rates and may fall below market expectations in a given period, which may cause ourshare price to decline.Any decline in the internet as a significant advertising platform in the countries in which we operate could have a material adverse effect on our business,financial condition and results of operations. We generate almost all our revenues from the sale of online advertising in Russia. Although the use of the internet as a marketing channel in Russia ismaturing, the level of overall spending on advertising in Russia remains relatively low compared to that in other developed countries Broadband penetrationrates in Russia are also relatively low compared to those in some other developed countries. The internet competes with traditional advertising media, such astelevision, print, radio and outdoor advertising. Although advertisers have become more familiar with online advertising in recent years, some of our currentand potential customers have limited experience with online advertising, and have not historically devoted a significant portion of their marketing budgetsto online marketing and promotion. As a result, they may be less inclined to consider the internet effective in promoting their products and services comparedwith traditional media.17 Table of Contents Any decline in the appeal of the internet generally in Russia or the other countries in which we operate, whether as a result of increasing governmentalregulation of the internet, the growth in popularity of other forms of media, a decline in the attractiveness of the internet as an advertising medium or anyother factor, could have a material adverse effect on our business, financial condition and results of operations.Index spammers could harm the integrity of our search results, which may adversely affect our business. So-called "index spammers" seek to develop ways to manipulate internet search results. For example, because our search technology ranks a webpage'srelevance based in part on the importance of the websites that link to it, people have attempted to link groups of websites together to manipulate searchresults. Although we constantly innovate to develop our search technologies to direct users to relevant information, we may be unable to counter suchdisruptive activity. If our efforts to combat these and other types of index spamming are unsuccessful, our reputation for delivering relevant results could beharmed. This could result in a decline in user traffic, which may adversely affect our business, financial condition and results of operations.Malicious applications that interfere with or exploit security flaws in our services could materially adversely affect our business, financial condition andresults of operation. Third parties have in the past attempted, and may in the future attempt, to use malicious applications to interfere with our users' internet experience,including hijacking queries to our search engine, altering or replacing Yandex search results, or otherwise disrupting our ability to connect with our users.Such interference often occurs without disclosure to or consent from users, resulting in a negative experience that users may associate with Yandex. In addition, we offer applications and services that our users download to their computers or that they rely on to store information and transmitinformation to others over the internet. These services are subject to attack by viruses, worms and other malicious software programs, which could jeopardizethe security of information stored in a user's computer or in our computer systems and networks. If our efforts to combat these malicious applications areunsuccessful, or if our services have actual or perceived vulnerabilities, our reputation may be harmed, our user traffic could decline, and our communicationswith certain users could be impaired, which could adversely affect our business, financial condition and results of operations. As with any other internet company, Yandex is at risk of becoming a target of cracking (efforts to defeat security or encryption protections), a distributeddenial-of-service attack, or other computer attack, which could result in a temporary closing of the Yandex sites or some of its services. Such an attack couldalso lead to the destruction or theft of information, potentially including confidential or proprietary information relating to Yandex's intellectual property,content and users. For example, if a third party were to hack into our network, they could obtain access to our search code. This information could potentiallybe valuable to our competitors or to search engine optimizers who are looking to improve their clients' site rankings within our search results pages. We arenot presently aware of a situation where our code has been used in a way that would harm us, but we may be faced with such a situation in the future.Certain technologies could block our ads, which may adversely affect our business, financial condition and results of operations. Third parties have in the past, and may in the future, employ technologies to block the display of ads on webpages. Ad-blocking technology, if usedeffectively, would reduce the amount of revenue generated by the ads we serve and decrease the confidence of our advertisers and Yandex ad network18 Table of Contentspartners in our advertising technology, which may adversely affect our business, financial condition and results of operations.If we fail to detect click fraud or other invalid clicks, we may face litigation and may lose the confidence of our advertisers, which may adversely affect ourbusiness, financial condition and results of operations. We are exposed to the risk of fraudulent and invalid clicks on our ads from a variety of potential sources. Invalid clicks are clicks that we havedetermined are not intended by the user to access the underlying content, including clicks resulting from click fraud. Click fraud usually occurs when anautomated script or computer program is used to imitate a legitimate web browser user clicking on an ad. We monitor our own websites and those of ourpartners for click fraud and proactively seek to prevent click fraud and filter out fraudulent clicks. To the extent that we are unsuccessful in doing so, wecredit our advertisers for clicks that are later attributed to click fraud. If we are unable to stop these invalid clicks, these credits to our advertisers mayincrease. If we find new evidence of past invalid clicks, we may retroactively issue credits to advertisers of amounts previously paid to our network partners.This negatively affects our profitability, and these invalid clicks may harm our brand.As the internet evolves, an increasing amount of online content may be held in closed social networks or stored in proprietary document formats, whichmay limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations. Social networks are becoming increasingly important players in the internet market, and have a significant degree of control over the manner and extentto which information on their websites can be accessed through third-party search engines. For example, in early 2013 we launched our Wonder mobileapplication in the United States, which enabled personalized search of information available to users through their accounts with various social networks andservices, including Facebook, Twitter, Instagram and Foursquare. Facebook subsequently blocked our access to its platform Application ProgrammingInterface and launched a graph search service of its own. In addition, a large amount of information on the internet is provided in proprietary document formats such as Microsoft Word and Adobe Acrobat. Theproviders of the software applications used to create these documents could engineer the document format to prevent or interfere with our ability to access thedocument contents with our search technology. If social networks or software providers take steps to prevent their content or documents in their formats from being searchable, such content would notbe included in our search results even if the content was directly relevant to a search request. These parties may also seek to require us to pay them royaltiesin exchange for giving us the ability to search content on their sites or documents in their format and provide links thereto in our search results. If theseparties also compete with us in the search business, they may give their search technology a preferential ability to search their content or documents in theirproprietary format. Any of these results could adversely affect our brand, business, financial condition and results of operations.We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, ourbusiness, financial condition and results of operations. We rely on a combination of patents, trademarks, trade secrets and copyrights, as well as nondisclosure agreements, to protect our intellectual propertyrights. Our patent department is responsible for developing and implementing our group-wide patent protection strategy in selected jurisdictions, and to datewe have filed more than 150 patent applications, some of which have already resulted in issued patents. The protection and enforcement of intellectualproperty rights in Russia and other markets in which we operate, however, may not be as effective as that in the United States or Western Europe. Also, theefforts we have taken to protect our proprietary rights may not be sufficient19 Table of Contentsor effective. Any significant infringement of our intellectual property rights could harm our business, our brand and/or our ability to compete, all of whichcould adversely affect our competitive position, our business, financial condition and results of operations.We may be subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit ourability to provide certain content or use certain technologies in the future. A number of internet, technology, media and patent-holding companies own or are actively developing patents covering search, indexing, electroniccommerce and other internet-related technologies, as well as a variety of online business models and methods. We believe that these parties will continue totake steps to protect these technologies, including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding theownership of technologies and rights associated with online activities are likely to arise in the future. In addition, use of open-source software is often subjectto compliance with certain license terms, which we may inadvertently breach. With respect to any intellectual property rights claim, we may have to pay damages or compensation and/or stop using technology found to be inviolation of a third party's rights. We may have to seek a license for the technology, which may not be available on commercially reasonable terms or at all,and may significantly increase our operating expenses. We may be required to develop an alternative non-infringing technology, which may requiresignificant effort, expense and time to develop. If we cannot license or develop technology for any potentially infringing aspects of our business, we may beforced to limit our service offerings and may be unable to compete effectively. We may also incur substantial expenses in defending against third-partyinfringement claims regardless of the merit of such claims.Our ability to offer our services may be adversely affected by laws and regulations or user concerns regarding privacy and the protection of user data, anyof which could materially adversely affect our business, financial condition and results of operations. Applicable Russian and foreign laws and regulations govern the collection, use, sharing and security of data that we receive from our users and partners.Although we believe that we comply with all current requirements, these laws could in the future be interpreted and applied in a manner that is inconsistentwith current practice. For instance, in May 2014 the Court of Justice of the European Union established that an operator of a search engine can be obligatedto remove from the list of search results links to web-pages containing inaccurate or outdated information related to an individual. If personal data legislationis interpreted and applied in a manner not consistent with current practice, we could face fines or orders requiring that we change our operating practices,which in turn could have a material adverse effect on our business, financial condition and results of operations. Recently adopted amendments to thepersonal data law in Russia will require that companies store all personal data of Russian users only in databases located inside Russia, starting September 1,2015. Although our principal data centers are currently located in Russia, this law could limit our flexibility in managing our operations globally. Increasing public awareness of these issues could lead to further restrictions on the use of such data, which could in turn affect our search performanceand therefore our ability to generate advertising revenue. In addition, it is our policy to protect the privacy of our users and to keep confidential the data theyprovide to us, and as a result we may choose not to exploit certain opportunities to maximize revenues in ways that could jeopardize our users' trust in us inthis regard. Furthermore, we use cookies and other widespread technologies that assist us in improving the user experience and personalization of our products andservices and ultimately benefit both our users and advertisers through behavioral targeting, which makes our advertising more relevant. There is no20 Table of Contentsclarity as to whether our practices are compliant with the requirements of applicable data protection legislation in Russia and abroad, and such laws could beinterpreted and applied in a manner that is not consistent with our current data protection practices. Additionally, as our business grows in foreign jurisdictions beyond Russia and our services are offered to foreign users, we may encounter increasedpressure from foreign state authorities with respect to production of information related to the users in circumvention of the international legal frameworkregulating the provision of such information. Any non-compliance with such requests may lead to liability and other adverse consequences.We may be held liable for information or content displayed on, retrieved by or linked to our websites, or distributed by our users, or we may be required toblock certain content, which could harm our reputation and business. The law and enforcement practice relating to the liability of providers of online services for the activities of their users is currently not settled in Russiaand certain other countries in which we operate. Claims may be brought against us for defamation, libel, negligence, copyright, patent or trademarkinfringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and content of information towhich we link or that may be posted online via blogs and message boards, generated by our users or delivered or shared through our services such as email,chat rooms, hypertext links to third-party websites, or video, image and file storage services, including if appropriate licenses and/or rights holder's consentshave not been obtained. For example, we have previously been involved in litigation regarding alleged copyright infringement in the United States. We arealso regularly required to remove content uploaded by users on grounds of alleged copyright infringement, and from time to time we receive requests fromindividuals who do not want their names or websites to appear in our search results. Third parties may also seek to assert claims against us alleging unfaircompetition, data misappropriation, violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions couldbe costly and involve significant time and attention of our management and other resources. If any of these complaints results in liability to us, the judgmentor settlement could potentially be costly, encourage similar lawsuits, and harm our reputation and possibly our business. The governments of the countries in which we operate are increasingly developing legislation aimed at regulation of the internet. For example, in August2013, new amendments to Russian laws, including to the Russian Civil Code, came into effect aimed at the enhancement of intellectual property rightsenforcement on the internet. Certain provisions aimed at the liability of information intermediaries could be construed to establish liability for actions notpreviously actionable, such as linking to allegedly infringing materials. Also, in October 2014, new amendments to the Russian Civil Code came into effectintroducing strict liability for infringement of intellectual property rights if such infringement is committed in connection with business activities. Newlegislation and regulations, such as these, may impose new requirements on us and our operations and lead to material legal liability, which can be difficultto foresee or limit. Additional recent legislation in Russia has introduced a system of information and website blocking measures both to prevent and stop copyright andrelated rights infringements (other than infringements of copyright in photographs) and to prevent dissemination of illegal information, such as childpornography, content encouraging suicides, drug use, information on minors hurt by illegal actions and extremist information. The regulations generallyrequire notification to be sent by governmental authorities to the administrator of the website or hosting provider, requesting that they take down theallegedly infringing or illegal information prior to blocking access to the website. However, in some cases, such as dissemination of extremist information,access to such information can be blocked without notification or prior judicial scrutiny. The categories of illegal information to which access can berestricted may be interpreted broadly or be expanded. For example, in July 2014 Russian authorities21 Table of Contentsordered that access to several websites be blocked on the basis of the violation of personal data regulations. The most recent amendment to this legislation,which comes into force on May 1, 2015, has introduced the possibility to require the permanent blocking of websites for violation of copyright and relatedrights. There is no clarity as to how this measure will be applied in practice. Based on these considerations and the uncertainties in the application of theselaws, we may be subject to unpredictable blocking measures, injunctions or court decisions that may require us to block or remove content and mayadversely affect our services and operations. In addition, to ensure compliance with such laws we may be required to commit greater resources, or to limitfunctionality of our services, which may adversely affect the appeal of our services to our customers. In February 2014, new Turkish legislation expanded the liability of and requirements for internet service providers. In particular, the amended lawincreases the period of time for which internet service providers must retain traffic information, expands their obligation to respond to information requestsfrom government officials and creates new grounds for taking down content and blocking of websites on the internet. Another law adopted in October 2014introduced regulation of electronic commerce and impacts online sales, commercial messages and the protection of personal data. The Turkish Parliament,Constitutional Court and Supreme Court actively introduce, interpret and implement new rules to regulate the liability of, and may create new obligationsfor, internet service providers. Adoption of new rules, as well as interpretation and implementation of existing legislation regulating activities of internetservice providers, may impact our operations in Turkey.We rely on third-party providers for our principal internet connections and equipment critical to our internet properties and services, and any errors,failures or disruption in the products and services provided by these third parties may materially adversely affect our brand, business, financial conditionand results of operations. Any disruption in the network access provided by third parties or any failure by them to handle current or higher volumes of use may significantly harmour business. We exercise little control over these third parties, which increases our vulnerability to problems with the services they provide. We haveexperienced and expect to continue to experience interruptions and delays in service. Furthermore, we depend on hardware and software suppliers for promptdelivery, installation and service of servers and other equipment to deliver our services. Any errors, failures, interruptions or delays experienced inconnection with these third-party products and services may negatively impact our relationship with users and materially adversely affect our brand,business, financial condition and results of operations.We may have difficulty scaling and adapting our existing technology architecture to accommodate increased traffic and technology advances or newrequirements of our users and advertisers, which could adversely affect our business, financial condition and results of operations. With some of the most highly visited websites in Russia, we deliver a growing number of services and page views to an increasing number of users. Inaddition, the services we offer have expanded and changed significantly and are expected to continue to do so in the future to accommodate bandwidth-intensive technologies and means of content delivery, such as interactive multimedia and video. Our future success will depend on our ability to adapt torapidly changing technologies, to adjust our services to evolving industry standards and to maintain the performance and reliability of our services. Rapidincreases in the levels or types of use of our online services could result in delays or interruptions in our services. As we expand our services, we will need to continue to invest in new technology infrastructure, including data centers. For example, we recentlycompleted the first phase of construction of a data center in Finland. We may have difficulty in expanding our infrastructure to meet any rising demand forour services, including difficulties in obtaining suitable facilities or access to sufficient electricity supplies. A failure to expand our infrastructure couldmaterially and adversely affect our ability to22 Table of Contentsmaintain and increase our revenues and profitability and could adversely affect our business, financial condition and results of operations.A systems failure or human error could prevent us from providing search results or ads, which could lead to a loss of users and advertisers and damage ourreputation and materially adversely affect our business, financial condition and results of operations. Although we have implemented network security measures, our systems are potentially vulnerable to damage or interruption from terrorist attacks,denial-of-service attacks, computer viruses or other cyber-attacks or attempts to harm our system, power losses, telecommunications failures, floods, fires,extreme weather conditions, earthquakes and similar events. Our data centers, which we maintain ourselves, are also potentially subject to break-ins, sabotageand intentional acts of vandalism, and to potential disruptions. The occurrence of a natural disaster or other unanticipated problems at our data centers couldresult in lengthy interruptions in our service, which could reduce our revenues and profits, and our brand could be damaged if people believe our services areunreliable. From time to time, we have experienced power outages that have interrupted access to our services and impacted the functioning of our internal systems.Although we have installed back-up generators, these may not operate properly through a major sustained power outage or their fuel supply could beinadequate. Any unscheduled interruption in our service places a burden on our entire organization and would result in an immediate loss of revenue. If weexperience frequent or persistent system failures on our websites, our reputation and brand could be permanently harmed. The steps we have taken to increasethe reliability and redundancy of our systems are expensive, reduce our operating margin and may be insufficient to reduce the frequency or duration ofunscheduled downtime. In addition to physical damage and power outages, our systems are also vulnerable to human error. For example, in 2011 we experienced a networkoutage resulting from human error, which resulted in more than two hours of system down time and which had a temporary negative effect on our searchmarket share. We experienced two shorter periods of downtime in 2012 and 2013 due to coding errors, which had less serious impacts on our search share.There were no significant downtime periods in 2014. Although we test updates before implementation, errors made by our employees in maintaining orexpanding our systems may damage our brand and materially adversely affect our business, financial condition and results of operations.Our business depends on the continued development and maintenance of the internet infrastructure in the countries in which we operate. Our future success will depend on the continued development and maintenance of the internet infrastructure globally and particularly in the countries inwhich we operate. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliableinternet services. The internet infrastructure may be unable to support the demands placed on it by growing numbers of users and time spent online orincreased bandwidth requirements. Any outages or delays resulting from inadequate internet infrastructure could reduce the level of internet usage as well asour ability to provide our services to users, advertisers and network partners, which could materially adversely affect our business, financial condition andresults of operations.23 Table of ContentsWe may seek to acquire complementary businesses, teams and technologies in the future, and may fail to identify suitable targets, acquire them onacceptable terms or successfully integrate them, which may limit our ability to implement our growth strategy. Acquisition of new businesses may also leadto increased legal risks and other negative consequences which could have an adverse effect on our business, financial condition and results of operations. From time to time we acquire other businesses, technologies and teams. For example, in 2013 we completed the acquisition of KinoPoisk LLC, a websitededicated to movies, television programs and celebrities. In 2014 we completed the acquisitions of KitLocate Ltd., a developer of an energy efficientgeolocation technology for mobile devices, Auto.ru, a Russian online auto classifieds site, the ADFOX advertising technology platform, and several others.We continue to evaluate selected potential acquisitions and, from time to time, may engage in discussions regarding potential acquisitions. The acquisitionand integration of new businesses or technologies pose significant risks to our existing operations, including:•additional demands placed on our management, who are also responsible for managing our existing operations; •increased overall operating complexity of our business, requiring greater personnel and other resources; •difficulties in expanding beyond our core expertise; •significant initial cash expenditures or share dilution in connection with acquiring and integrating new businesses; and •legal risks (including potential claims of the counterparty or of third parties), which may result from our lack of expertise in the field of thetarget's business, an incomplete or improper due diligence, misrepresentations by counterparties, and/or other causes. The integration of new businesses present a number of challenges, including differing cultures or management styles, poor financial records or internalcontrols on the part of the acquired companies, and an inability to establish control over cash flows. Furthermore, even if we are successful in integrating newbusinesses, expected cost and operating efficiencies may not materialize, the financial benefits from the acquisition may be less than anticipated, and wecould be required to record impairment changes in respect of under-performing assets. Moreover, our growth may suffer if we fail to identify suitable acquisition targets or are outbid by competing bidders. As a NASDAQ-listed company, weare subject to securities laws and regulations that, in certain circumstances, require that we file with the SEC audited historical financial statements forbusinesses we acquire that exceed certain materiality thresholds. Given financial reporting practices in Russia and other countries in which we operate, suchfinancial statements and documented systems of internal controls over financial reporting are often not readily available or not capable of being audited tothe standards required by U.S. securities regulations. As a result, we may be prevented from or delayed in pursuing acquisition opportunities that ourcompetitors and other financial and strategic investors are able to pursue, which may limit our ability to implement our growth strategy.If we are unable to license, acquire or create compelling content at reasonable costs, the number of users of our services may not grow as anticipated ormay decline, which would adversely affect our business, financial condition and results of operations. Our future success depends in part upon our ability to offer compelling content. We license from third parties much of the content of our services, such asmusic, news items, weather reports and TV program schedules. If we are unable to maintain and build relationships with third-party content providers thiswould likely result in a loss of user traffic. In addition, we may be required to make24 Table of Contentssubstantial payments to third parties from whom we license or acquire such content. An increase in the prices charged to us by third-party content providerswould adversely affect our business, financial condition and results of operations. Further, many of our content licenses with third parties are non-exclusive. Accordingly, other websites and other media such as radio or television maybe able to offer similar or identical content. This increases the importance of our ability to aggregate compelling content in order to differentiate Yandex fromother businesses. If other companies make available competitive content, the number of users of our services may not grow as anticipated, or may decline.Our Yandex.Money joint venture may be used for fraudulent, illegal or improper purposes, which could materially adversely affect our brand, reputation,business, financial condition and results of operations. The electronic payments system of our Yandex.Money joint venture with Sberbank is susceptible to fraud and to potentially illegal or improper uses, andwe have on occasion identified or been informed of such uses in the past. These may include:•illegal online gambling; •fraudulent sales of goods or services or other merchant fraud; •illicit sales of prescription medications, controlled substances, alcoholic beverages or tobacco products; •software and other intellectual property piracy; •bank or securities fraud, identity theft or money laundering; •improper use of the service for business-to-business transactions; •child pornography or trafficking; and •other illegal or improper purposes. Our ability to control the day-to-day operations of Yandex.Money following completion of the joint venture transaction in July 2013 is more limitedthan was the case while we were the sole owner of this business. If Yandex.Money is unable to prevent, detect or otherwise adequately address fraud or otherimproper uses of its services, users may lose confidence in the integrity and security of its services, which may result in a reduction in the number of users andtransactions. Any negative publicity associated with the Yandex name in connection with such activities, including criminal proceedings against a user whoconducts illegal activities using its services, could result in damage to our brand or reputation. If we are unable to manage these risks, our brand, reputation,business, financial condition and results of operations could be materially adversely affected.Failure to maintain effective customer service may result in customer complaints and negative publicity and may adversely affect our business, financialcondition and results of operations. Customer complaints or negative publicity about our services or those offered by us or our Yandex.Money joint venture with Sberbank, or breaches ofcustomers' privacy or of our security measures, could diminish consumer confidence in and use of our services. Measures we implement to combat risks offraud and breaches of privacy and security may be viewed as onerous by our customers or those of our joint venture and damage relations with them.Alternately, should breaches of customers' privacy or of security measures occur, we could be subject to investigations and claims from the governmentalbodies, as well as from our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes.Effective customer service requires significant personnel expense, and such expense, if not managed properly, may impact our profitability or that of ourYandex.Money joint venture. Any inability by us or our Yandex.Money joint venture to25 Table of Contentsmanage or train our or their customer service representatives properly could compromise our or their ability to handle customer complaints effectively. If weor Yandex.Money fail to maintain effective customer service, our reputation may suffer and we may lose our customers' confidence, which may adverselyaffect our business, financial condition and results of operations.The inherent limitations of the available data regarding internet usage and online advertising may make it difficult to assess our markets and our marketposition. We rely on and refer to information and statistics from various third-party sources, as well as our own internal estimates, regarding internet usage andpenetration and the online advertising markets in the countries in which we operate. The information and statistics used in our industry are subject toinherent limitations reflecting the differing metrics and measurement methods utilized and applied by different sources; for example, data derived fromcomputer usage contrasted to that derived from user surveys. In addition, while we believe that the available data and research on the Russian market is ofcomparable quality to that available in most developed countries, the data for Ukraine, Kazakhstan and Belarus are generally less consistent and reliable dueto more limited third party measurements in those countries.We may be subject to claims from our current or former employees as well as contractors for copyright, trade secret and patent-related matters, which arecostly to defend and if lost by us could adversely affect our business, financial condition and results of operation. The software, databases, algorithms, images as well as patentable results and trade secrets (know-how) that we use for the operation of our services weregenerally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope oftheir job functions or under the relevant contractor's agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright,related rights as well as rights to file patent applications with respect to such products, and have the intellectual property rights to their further use anddisposal subject to compliance with certain requirements set in the Civil Code of Russia. We believe that we have appropriately followed such requirements,but they are defined in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore,former or current employees or contractors could either challenge the transfer of intellectual property rights over the products developed by them or with theircontribution or claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation.We may not prevail in any such action and any successful claim could adversely affect our business, financial condition and results of operation. Althoughthe exact amount of compensation is not currently regulated by Russian law, the Russian government has previously proposed establishing a de minimisamount of required compensation for works and patentable results created by employees, which, if adopted, may affect the amount and structure of paymentsto our employees.Risks Related to Doing Business and Investing in Russia and Other Countries in which We OperateEmerging markets, such as Russia, are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risksmay have a material adverse effect on our business, financial condition and results of operations. Emerging markets such as Russia are subject to greater risks than more developed markets, including in some cases, financial, economic, legal andpolitical risks. Such risks or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment andadversely affect the economies of the countries in which we operate. For example, the current geopolitical situation in Ukraine may have deleteriousmacroeconomic and other effects on the regions in which we operate, including, among other things, increased volatility in currency values and a weaker26 Table of Contentsoverall business environment. In addition, such circumstances may harm or encourage volatility in our share price and in equity markets in general. Theseemerging market and economies are also subject to rapid change. For these reasons, our business, financial condition and results of operations may bematerially adversely affected by any crises in Russia or other emerging markets in which we operate. See also "Risks Related to the Russian Economy."Inflation may increase our costs and exert downward pressure on our operating margin. The Russian economy has generally been characterized by high rates of inflation in recent years. According to the Russian Federal State StatisticsService, Rosstat, the annual inflation rate in Russia was 6.6% in 2012, 6.5% in 2013 and 11.4% in 2014, and is forecast to be between 12% and 14% for2015, as measured by the consumer price index. Because substantially all of our operations are in Russia, our costs are sensitive to increases in prices inRussia. As a result, high rates of inflation increase our costs, and these increases in cost could negatively impact our operating margin.The legal system in Russia and other countries in which we operate can create an uncertain environment for investment and business activity that couldhave a material adverse effect on the value of our Class A shares, our business, financial condition and results of operations. The legal framework supporting a market economy remains new and in flux in Russia and the other countries in which we operate and, as a result, therelevant legal systems can be characterized by:•rapid or unexpected changes in the legislative framework; •inconsistencies between and among laws and regulations; •gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations and a subordinate legalframework; •selective and inconsistent enforcement of laws or regulations, sometimes in ways that have been perceived as being motivated by political orfinancial considerations; •scarce judicial and administrative guidance on interpreting legislation; •relatively limited experience of judges and courts in interpreting recent commercial legislation as well as in understanding specifics ofbusiness operations and international best practices in the sphere of information technology and other areas; •a perceived lack of judicial and prosecutorial independence from political, social and commercial forces; •inadequate court system resources; •a high degree of discretion on the part of the judiciary and governmental authorities; and •poorly developed bankruptcy procedures that are not infrequently abused. Furthermore, a range of civil legislation in Russia is currently under review or has recently been adopted. For example, recent legislative changes haveaddressed intellectual property regulations, including regulation of the use of intellectual property rights in the internet and regulation of patents. Furtherchanges set out in First Part of Russian Civil Code containing general provisions on obligations and contracts are expected to come into effect in June 2015.Such amendments may significantly affect existing business practices and result in additional legal risks related to compliance with newly adopted civillegislation. In addition, as is true of civil law systems generally, judicial precedents generally have no binding effect on subsequent court decisions. In 2014, theHigher Arbitrazh Court was disbanded and cases formerly within its jurisdiction were transferred to the Supreme Court of Russia, while the system of27 Table of Contentslower arbitrazh courts remained unchanged. The Supreme Court of Russia, which through a separate division now handles commercial disputes after thejudicial reorganization, and the entire system of courts of common jurisdiction, are known to be more rigid and conservative than the system of arbitrazhcourts. This may result in reconsideration of the previous practices and rulings favorable to business activity and a significant change in the judicial climatein Russia. Not all legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding. Enforcement of Russiancourt rulings as well as recognition and enforcement of foreign state court awards may prove to be substantially problematic. All of these factors makejudicial decisions difficult to predict and effective protection of rights and interests uncertain. Additionally, court claims and governmental prosecutions maybe used in furtherance of what some perceive to be political aims. In other countries in which we operate, limited and inconsistent enforcement with respect to certain laws and the rapid evolution of their legal systemsmay result in ambiguities, inconsistencies and anomalies in the application and interpretation of laws and regulations. Any of these factors may result in ourbeing subject to unpredictable fines or requirements, affect our ability to enforce our rights under our contracts or to defend ourselves against claims byothers, or result in our being subject to unpredictable requirements, and could have a material adverse effect on our Class A shares and our business, financialcondition and results of operations. The fact that we are a high-profile company may heighten this risk. See "—Businesses in Russia, have on occasion beensubject to actions by public authorities that some have characterized as unpredictable or politically motivated" and "—Risks in other countries."The legal framework governing internet services and e-commerce in Russia and the other countries in which we operate is in the process of development,and we may be required to have additional licenses, permits or registrations, or to take additional actions in order to conduct our business, which may becostly or may limit our flexibility to run our business. Although we believe that we currently have all material licenses and permits required to conduct our business, court interpretations and the applicabilityof Russian commercial legislation and regulations in relation to our business can be ambiguous or contradictory and it is possible that the authorities maydetermine that we are required to have additional licenses, permits or registrations. For example, we could fall within the following regulations that requirereceipt of licenses/permits or compliance with certain mandatory procedures:•Currently, Russian law requires acquisition of a "telematics" license by a company if it provides any telecommunications services for a fee. Wegenerally do not charge for the online services we provide to our users and therefore believe we are not required to hold a telematics license;we do, however, generate revenue from ads directed to our users. It is possible that a Russian court or a government agency may construe ouradvertising revenue as an indirect "fee" and determine that we are required to hold a telematics license. Additionally, as we may furtherdevelop certain user services that would be provided for a fee in the future, we cannot assure you that such services, if developed, would nottrigger the licensing requirements referenced above. •Russian law requires that "mass media" businesses be registered with the applicable governmental authority. Although Russian law does notspecifically include internet enterprises in the list of mass media businesses, several internet businesses that publish news have been requiredto obtain an electronic mass media registration. Current law also permits electronic network publications (websites) to register on a voluntarybasis as mass media under the procedures established by the law. Our principal operating subsidiary, which operates our search and most of ourother user services and online properties, does not hold a mass media28 Table of Contentsregistration. In 2014, a member of the Russian parliament submitted an official inquiry to the General Prosecutor's Office asking whether ourYandex.News service should be registered as mass media in accordance with Russian law. The General Prosecutor's Office responded thatYandex.News is not a mass media and is not required to be registered as such. We have determined that we are not required to register as a massmedia business; however, we cannot assure you that we will not be required to register as a mass media business in the future, especially if thecurrent law changes. Obtaining and maintaining such registration may be burdensome, time-consuming and costly, and may adversely affectour business, financial conditions and results of operations. Moreover, amendments to the Mass Media Law adopted in October 2014 will limitnon-Russian ownership and control, direct or indirect, of Russian mass media to no more than 20%, starting in 2016. Accordingly, if our corebusiness were to be required to register as a mass media, it would have a material impact on the ownership structure of our business and couldmaterially adversely affect the value of our Class A shares. See also "—If the Russian government were to impose limitations on foreignownership of internet businesses in Russia, it could materially adversely affect our group and the value of our Class A shares."•In 2014, the Russian government introduced legislation regulating popular bloggers. The legislation is drafted in general terms and canpotentially apply to any owner of a website or webpage which contains publicly available information and is visited by more than 3,000internet users daily, whether such site is owned and/or operated by an individual or a legal entity. Popular bloggers have to register with theRussian authorities and bear responsibilities in respect of the content available on their websites or webpages which are substantially similarto the obligations of mass media in Russia (including a requirement to ensure the accuracy of the information made available). Since the scopeof this legislation is uncertain, it is unclear whether the new legislation applies to any of the companies of our group. •Businesses that use certain encryption technologies in their products and services may be required to obtain a license from the Russian FederalSecurity Service. We use standard encryption protection measures in some of our services such as Yandex.Mail, and although we believe thatsuch use of encryption is excluded from these licensing requirements, we cannot assure that the regulator may not take a different view. We may have to apply for additional licenses, permits or registrations, or provide notifications, to comply with new or existing legal requirements, whichmay be costly or may limit our flexibility to run our business. If we fail to obtain and maintain required licenses, permits or registrations, or fail to complywith other applicable legal requirements, we may face fines, penalties or sanctions. These may include a requirement that we permanently or temporarilycease certain of our business activities, administrative penalties or criminal prosecution of our officers. In addition, we might be unable to immediatelycomply with new regulations upon their implementation.We may be subject to laws that impose restrictions on the processing of certain types of personal and other data, which may affect our ability to flexiblymanage our business or make it more costly to do so, or subject us to fines or other penalties. Collection and handling of personal data by any entity or person in Russia is subject to certain requirements and restrictions, including obtaining writtenconsent from the relevant individual and using technical and encryption means for the protection of personal data. In addition, subject to several exemptions,a notification must be made to the appropriate Russian governmental body, Roscomnadzor, to process personal data. We do not collect or perform anyoperations on our users' personal data, except when such collection or processing is in accordance with our terms of services and privacy policies which areavailable on our websites. Due to the absence of established court practice and official guidelines on the application of exemptions, however, we cannotassure you that29 Table of Contentsthe regulator may not take a view that we nevertheless have to file a notification or comply with other requirements. If we are ultimately required to file sucha notification or otherwise are determined to be subject to the rules regarding the collection and handling of personal data, we may be required to use specialtechnical facilities and equipment and to adopt extensive internal compliance rules for the protection of personal data, which may adversely affect our abilityto flexibly manage our business or make it more costly to do so. Recently adopted amendments to the personal data law in Russia will require that companies store all personal data of Russian users only in databaseslocated inside Russia, starting September 1, 2015. In accordance with the amended legislation, a data operator, when collecting personal data of Russiancitizens including on the Internet, must ensure that the personal data is recorded, systemized, accumulated, stored, updated and gathered by using databasesthat are situated in Russia. Non-compliance with this requirement may lead to legal liability and potentially to restriction of the availability of the service inRussia. At the time of its adoption the new legislation was supposed to come into force on September 1, 2016, but recently the commencement date wasmoved to September 1, 2015. Since this legislation is drafted in very general terms, it is uncertain whether it applies to our operations or, if it does apply, towhat extent. Compliance with the requirements provided in this legislation may be practically difficult, require significant efforts and resources, could lead tolegal liability in other jurisdictions and limit functionality of our services. Compliance with the requirements contained in the new legislation may also limitour ability to compete with other companies located in other jurisdictions that do not require mandatory local storage of personal data relating to their users. Due to the nature of services we offer and the fact that we have presence in a number of countries, we may also be subject to personal data laws of otherjurisdictions, especially laws regulating to cross-border transfer of personal data, which may require significant compliance efforts and could result inliability for violations in other jurisdictions. Further, current law imposes restrictions on the distribution of satellite images of certain areas in Russia and the other countries in which we operate andimposes requirements with respect to the information provided by the traffic monitoring service we offer. If we were found to be in violation of any suchrestrictions, we may be forced to suspend such services or may potentially be subject to fines or other penalties.We may be subject to data retention regulations that require us to collect, store and produce to the state authorities certain types of data related to theactivity of our users, which may require us to acquire additional storage, make amendments to our services and products, or harm our reputation withusers. In 2014, the Russian government adopted legislation to regulate the "organizers of information distribution". The legislation is drafted in general termsand can potentially apply to any person developing software that may receive, transfer, deliver or process electronic messages of internet users. Organizers ofinformation distribution must notify the relevant Russian authority about the commencement of their operations. Organizers of information distribution mustalso retain a broad range of data relating to and generated by the users (including the facts of receipt, transfer, delivery and processing of information as wellas information about the users) for a period of six months and provide such data to security and investigation authorities at their request. If an organizer ofinformation distribution fails to comply with the above requirements, the Russian authorities can prescribe the blocking of access to the services of suchorganizer of information distribution. Although the scope of this legislation is uncertain, our main subsidiary operating in Russia has notified the relevant Russian authority that it acts as anorganizer of information distribution with respect to some of the services it provides. Compliance with the legislative requirements may require significantexpenditures by us such as expenditures on additional data centers, servers and other30 Table of Contentsinfrastructure or software development. Data retention may also harm our reputation with users and make our services less competitive in comparison with theservices provided by companies located in other jurisdictions that do not require the mandatory retention of data relating to their users. Failure to complywith the requirements of the new legislation may lead to our services being unavailable for our users in Russia.We may be subject to existing or new advertising legislation that could restrict the types and relevance of the ads we serve, which would result in a loss ofadvertisers and therefore a reduction in our revenues. Russian law prohibits the sale and advertising of certain products, such as illegal drugs. In addition, advertising for certain regulated products andservices may only be conducted by, or on behalf of, advertisers who possess the licenses, approvals and certificates required to market and sell such productsand services. Ads for certain products and services, such as financial services, as well as ads aimed at minors and some others, must comply with specific rulesand must in certain cases contain required disclaimers. Furthermore, a July 2012 amendment to Russian advertising legislation outlawed advertising ofalcohol on the internet as well as in periodicals. Similar regulations were adopted in November 2013 with respect to the advertising of cigarettes, tobaccoproducts and smoking accessories. In early 2014, new regulations were also adopted to limit or in certain cases to prohibit the advertising of medical services;these restrictions were loosened to some degree in June 2014. Further amendments to legislation regulating advertising may impact our ability to providesome of our services or limit the type of advertising we may offer. The application of these laws to parties, such as Yandex, that merely serve or distributesuch ads and do not market or sell the product or service, however, can be unclear. Pursuant to our terms of service, we require that our advertisers have allrequired licenses or authorizations. If our advertisers do not comply with these requirements, and these laws were to be interpreted to apply to us, or if our ad-serving system failed to include necessary disclaimers, we may be exposed to administrative fines or other sanctions, and may have to limit the types ofadvertisers we serve. The regulatory framework in Russia governing the use of behavioral targeting in online advertising is unclear. If new legislation were to be adopted, orcurrent legislation were to be interpreted, to restrict the use of behavioral targeting in online advertising, our ability to enhance the targeting of ouradvertising could be significantly limited, which could result in a loss of advertisers or a reduction in the relevance of the ads we serve, which would reducethe number of clicks on the ads and therefore our revenues.Our need to comply with applicable Russian laws and regulations could hamper our ability to offer services that compete effectively with those of ourforeign competitors and may adversely affect our business, financial condition and results of operations. Many of our global competitors, such as Google, Microsoft and Yahoo!, have their principal operations outside of Russia, putting them generally outsideof the jurisdiction of Russian courts and government agencies, even though some of them have offices in Russia. Our systems and operations are locatedprincipally in Russia. Russian laws and regulations that are applicable to us, but not to our foreign competitors, may impede our ability to develop and offerservices that compete effectively on a global scale as well as in Russia with those offered by our foreign-based competitors and generally available worldwideover the internet. For example, our foreign competitors may be able to offer certain content that is now, or may in the future be, restricted by Russian law. Anyinability on our part to offer services that are competitive with those offered by our foreign competitors may adversely affect our business, financial conditionand results of operations.31 Table of ContentsRussian authorities could determine that we hold a dominant position in one or more of our markets, and could impose limitations on our operationalflexibility that may adversely affect our business, financial condition and results of operations. Russian anti-monopoly legislation imposes restrictions on companies that occupy a dominant position in a given market. We believe that the authoritieshave not to date addressed internet advertising in Russia to any significant extent, although we are aware of public statements by government officialssuggesting that the authorities may analyze the business of online social networking. In addition, in February 2015, we made a formal request to the RussianFederal Antimonopoly Service (FAS) to open an investigation into whether Google is using its dominant position to promote its search and other servicesbundled into a single package imposed for pre-installation by device manufacturers, as well as employing exclusive dealing and other restrictive practices toincrease its search market share. Were the Russian authorities to investigate the broader internet or online advertising industries, as a result of the Androidinvestigation or otherwise, it is possible that they may conclude that, given our market share, we hold a dominant position in one or more of the markets inwhich we operate. This could result in limitations on our future acquisitions and a requirement that we pre-clear with the authorities any changes to ourstandard agreements with advertisers and Yandex ad network partners, as well as any specially negotiated agreements with business partners. In addition, ifwe were to decline to conclude a contract with a third party or terminate an existing agreement without sufficient substantiation this could, in certaincircumstances, be regarded as abuse of a dominant market position. As a general rule, actions or omissions of a dominant company are prohibited if they lead or may lead to prevention, restriction or elimination ofcompetition or infringement of third parties' interests, resulting in the imposition of disadvantageous contractual terms to the counterparty or terms notrelated to the subject of the contract; fixing different prices on the same commodity, where it is not economically or technologically justifiable; creatingdiscriminatory conditions or barriers to enter the market; or other consequences. Any abuse of a dominant market position could lead to administrativepenalties and the imposition of fines of up to 15% of our prior year annual revenues in the relevant market. These limitations may reduce our operational andcommercial flexibility and responsiveness, which may adversely affect our business, financial condition and results of operations.Businesses in Russia, have on occasion been subject to actions by public authorities that some have characterized as unpredictable or politicallymotivated. Many commercial laws and regulations in Russia are relatively new and have been subject to limited interpretation. As a result, their application can beunpredictable. In addition, government authorities have a tendency to follow a very formal approach in certain cases, are entrusted with a high degree ofdiscretion and have at times exercised their discretion in ways that may be perceived as selective or unpredictable, and sometimes in a manner that is seen asbeing influenced by political or commercial considerations. Such actions have included the termination or invalidation of contracts, withdrawal of licenses,sudden and unexpected tax audits, criminal prosecutions, administrative investigations and civil actions. Federal and local government entities have alsoused common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions, apparently for politicalpurposes. We cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees andregulations. The Russian government has taken various actions in recent years against business people and companies operating in Russia that have been perceivedas having been politically motivated, including actions for technical violations of law or violations of laws that have been applied retroactively, such asviolations of tax laws, or interpretations of widely used practices in specific cases as impermissible. In 2008, for example, government officials publiclycriticized transfer pricing arrangements used by a Russian-based company that is publicly traded in the United States, claiming that such arrangements32 Table of Contentsconstituted tax evasion. These claims resulted in a steep decline in that company's stock price. In 2014 a high-ranking Russian official made publicstatements about Yandex that were perceived by some to be negative, following which the price of our Class A shares dropped significantly. High-profile businesses in Russia, such as ours, can be particularly vulnerable to politically motivated actions. Some Russian television broadcasters, forexample, have experienced what some would characterize as politically motivated actions, including efforts to facilitate change of control. Although webelieve that our commitment to content neutrality principles lessens the risk of politically motivated actions against us, we cannot guarantee that we will notbe affected by politically motivated actions that could materially adversely affect our operations. Moreover, although our Yandex.News service aggregatescontent by automatic algorithm, without regard to viewpoint, other parties may perceive our Yandex.News service as reflecting a political viewpoint oragenda, which could subject us to politically motivated actions. See also "—The legal framework governing internet services and e commerce in Russia andthe other countries in which we operate is in the process of development, and we may be required to have additional licenses, permits or registrations, or totake additional actions in order to conduct our business, which may be costly or may limit our flexibility to run our business." The Russian parliament may adopt and government officials may apply unpredictable, contradictory or ambiguous laws or regulations in ways that havea material adverse effect on our business, financial condition and results of operations. Such actions have on occasion resulted in significant fluctuations inthe market prices of the securities of businesses operating in Russia, a weakening of investor confidence in Russia and doubts about the progress of marketand political reforms in Russia. Businesses operating in Russia can also be significantly affected by the rapid and unpredictable adoption of legislation,which can restrict or prohibit business practices that were previously permitted. For example, in 2013 the stock prices of a Russian bank focused on distancebanking services and a company offering instant payment services dropped sharply after the news about possible introduction of new laws that could impacttheir operations. Following the adoption in 2014 of amendments to the Russian Mass Media Law restricting foreign ownership and control of mass media, thestock price of a television broadcaster operating in Russia and listed on a foreign stock exchange dropped significantly.If the Russian government were to impose limitations on foreign ownership of internet businesses in Russia, it could materially adversely affect our groupand the value of our Class A shares. In October 2014, an amendment to the Russian law "On Mass Media" was adopted that will reduce the permitted level of foreign ownership in companiesthat hold Russian mass media registrations. The law will come into force on January 1, 2016, by which time each Russian mass media entity must complywith the requirement that non-Russian entities and individuals in the aggregate shall beneficially own or control, directly or indirectly, no greater than 20%of the relevant mass media entity. Yandex's principal businesses in Russia are not currently required to register as mass media, and therefore this new law isnot applicable to our business. Were a new law with a similar regulation to be adopted that imposed a limitation on foreign ownership of internet businessessuch as ours, or were the mass media law to be amended to require that our businesses register as mass media or implement a separate registration for onlineservices, this could require a significant change in our operating or ownership structure, which could materially adversely affect our operations and/or thevalue of our Class A shares. Our Yandex.Traffic service is currently registered as an information agency. We are evaluating a restructuring of this part of our business to comply withthe requirements of the mass media law, and do not expect that these requirements will adversely affect our core business.33 Table of ContentsExisting restrictions on foreign ownership may prevent a takeover of our company by a non-Russian party. The Russian Federal Law "On the Procedure for Foreign Investments in Companies which are Strategically Important for the State Defense and NationalSecurity" (the "Strategic Companies Law") restricts foreign ownership of companies involved in certain strategically important activities in Russia. Therelevant activities include activities connected with the use of encryption technologies that are subject to licensing. The internet and online advertising arenot currently industries specifically covered by the Strategic Companies Law, but there have previously been draft amendments under consideration by theRussian State Duma, which, if adopted, would include certain internet companies that have large audiences within the scope of this law. Amendmentseffective as of December 2014 further extended the scope of the Strategic Companies Law to include transactions on stock markets and acquisitions of fixedassets of strategically important companies equaling or exceeding 25% of such entity's book value as reported in its latest financial statements. The Strategic Companies Law requires the prior approval of a Russian Governmental Commission chaired by the Prime Minister of Russia or post-transaction notification to the Russian Federal Anti-Monopoly Service (as the case may be) when obtaining control over a strategically important company.For example, under the provisions of the Strategic Companies Law, the direct or indirect acquisition of more than 25% of the voting power of a strategicallyimportant company or other ability to block decisions of the management bodies of a strategically important company by a foreign state, internationalorganization or entity controlled by a foreign government, or international organization, or the direct or indirect acquisition of more than 50% of the votingpower of such a company by any foreign investor or any of its controlled companies, requires the prior approval of the Russian Governmental Commissionchaired by the Prime Minister. Failure to obtain the required governmental approval prior to an acquisition would render the acquisition null and void. If it isimpossible to apply the consequences of invalidity to a void transaction, the state court may upon the lawsuit of the Russian Federal Anti-Monopoly Serviceadopt a decision:•depriving the foreign investor of its right to vote at the shareholders' (participant's) meeting of a strategically important company; or •invalidating the decisions of the management bodies of a strategically important company adopted after the establishment of control in breachof the Strategic Companies Law. Post-transaction notification to the Russian Federal Anti-Monopoly Service is required in the case of acquisition of 5% or more of the shares of astrategically important company. In addition, foreign investors or their group companies that are controlled by a foreign state or international organizationare prohibited from owning more than 50% of the voting power of a strategically important company, including jointly with other unrelated foreign investorscontrolled by a foreign state or international organization. We believe that our Yandex.Money joint venture is covered by the Strategic Companies Law due to the fact that PS Yandex.Money LLC currently holdsencryption licenses which fall within the scope of the Strategic Companies Law. Since the conclusion of our joint venture in respect of the Yandex.Moneybusiness in July 2013 following the sale by Yandex N.V. to Sberbank of 75% (less one ruble) of the total participation interest in PS Yandex.Money LLC , webelieve that the applicable restrictions in respect of private non-Russian persons no longer apply to Yandex N.V., but that the requirement to obtain priorapproval from the Russian Government Commission chaired by the Russian Prime Minister continue to be applicable to non-Russian state, internationalorganizations or entities controlled by a non-Russian government or international organization that would seek to acquire shares of Yandex N.V. or enter intoan agreement that would establish direct or indirect control over Yandex N.V. and, therefore, trigger application of the Strategic Companies Law discussedabove. There is also a risk that some of the rights granted to Yandex N.V. under the joint venture agreement with Sberbank could be interpreted by Russianauthorities as establishing control by Yandex N.V. over34 Table of ContentsPS Yandex.Money LLC, which would require the Russian Governmental Commission's preliminary consent for a broader number of transactions, includingby private non-Russian persons. These restrictions on ownership of our shares would be in addition to the restrictions on ownership of our shares provided for in our articles ofassociation. See "—Risks Related to Ownership of our Class A Shares—Our Board of Directors and our priority shareholder have the right to approveaccumulations of stakes in our company or the sale of our principal Russian operating subsidiary, which may prevent or delay change-of-controltransactions," "—Risks Related to ownership of our Class A Shares—Anti-takeover provisions in our articles of association and the shareholders agreementamong our principal shareholders may prevent or delay change-of-control transactions." Moreover, because Yandex N.V. holds 25% (plus one ruble) in PS Yandex.Money LLC, there is a risk that a change of control in respect of Yandex N.V.would still require preliminary consent of the Central Bank of Russia, as Yandex N.V. could be considered to indirectly hold more than 10% of the votingpower of a non-banking credit organization.Businesses in Russia can be subject to efforts by financial groups seeking to obtain control through the exercise of economic or political influence orgovernment connections. Well-funded, well-connected financial groups and so-called "oligarchs" have, from time to time, sought to obtain operational control and/or controllingor minority interests in attractive businesses in Russia by means that have been perceived as relying on economic or political influence or governmentconnections. We may be subject to such efforts in the future and, depending on the political influence of the parties involved, our ability to thwart suchefforts may be limited.The Russian banking and financial system remains less developed than those in some more developed markets, and a banking crisis could place liquidityconstraints on our business and materially adversely affect our business, financial condition and results of operations. Russia's banking and other financial systems are less well developed and regulated than those of some more developed markets, and Russian legislationrelating to banks and bank accounts is subject to varying interpretations and inconsistent application. Russian banks generally do not meet internationalbanking standards, and the transparency of the Russian banking sector lags behind international norms. In addition, the United States and European Unionhave imposed "sectoral" and related sanctions on named Russian banks in connection with developments in Ukraine. See "—The current geopolitical conflictin Ukraine and related international economic sanctions may continue to adversely affect the Russian economy and the value of investments in Russia, andcould harm our business, financial condition and results of operations." As a result, the banking sector remains subject to periodic instability. In 2013 the Central Bank of Russia conducted review of activities and operationsof Russian banks, which in certain cases led to withdrawal of banking licenses. Another banking crisis, or the bankruptcy or insolvency of banks throughwhich we receive or with which we hold funds, may result in the loss of our deposits or adversely affect our ability to complete banking transactions inRussia, which could have a material adverse effect on our business, financial condition and results of operations.Some of our counterparties provide limited transparency in their operations, which could subject us to greater scrutiny and potential claims fromgovernment authorities. We do business with a number of companies, especially small companies that do not always operate in a fully transparent manner and that may engage inunpredictable or otherwise questionable practices with respect to tax obligations or compliance with other legal requirements. We have on occasion beenapproached by government authorities regarding potential tax claims or other compliance matters in connection with such transactions. As a larger and moretransparent company with greater35 Table of Contentsresources than such counterparties, governmental authorities may seek to collect taxes and/or penalties from us in relation to such transactions on the basisthat we had knowledge of or aided such practices even when we did not.Changes in the Russian tax system or unpredictable or unforeseen application of existing rules may materially adversely affect our business, financialcondition and results of operations. Russian tax, currency, and customs laws and regulations are subject to varying interpretations and changes, which may be frequently revised andreviewed by the authorities. As a result, our interpretation of such tax legislation may be challenged by the relevant authorities. For example, recent majorlegislative developments in the Russian tax regime, such as implementation of the new transfer pricing rules, which came into effect in 2012, anti-offshoreand CFC rules, which came into effect in 2015, to a large extent resemble the OECD approach but may be implemented in a way which is not in line withinternational practice or our interpretation. Moreover, under the current conditions of weak economic growth and reduced tax revenue, the authorities aretaking more assertive position in their interpretation of the tax legislation and, as a result, it is possible that transactions and activities that have not beenchallenged in the past may now be put under question by the authorities. High-profile companies such as ours can be particularly vulnerable to such assertiveposition of the authorities. Although we believe that our interpretation of relevant legislation is appropriate and is in accordance with existing court practice, if the authorities weresuccessful in enforcing differing interpretations, our tax liability may become greater than the estimated amount that we have expensed to date and paid oraccrued on our balance sheet. Generally, Russian taxpayers are subject to inspection of their activities for a period of three calendar years immediately preceding the year in which anaudit is carried out, with a tax audits routinely undertaken at least every two years. The last tax audit of our principal Russian operating subsidiary covering2010, 2011 and 2012 was completed in 2014, which means that activities prior to December 31, 2012 are effectively closed to a tax audit. However, a highertax authority may conduct an audit for the financial year ending December 31, 2012.Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-Russia taxtreaty. In 2014, our principal Russian operating subsidiary distributed limited dividends to our parent company (Yandex N.V.) and applied withholding tax at a5% rate in reliance on the provisions of the Netherlands-Russia tax treaty. Yandex N.V. is incorporated in the Netherlands and our principal operating subsidiaries are incorporated in Russia. Our management seeks to ensure thatwe conduct our affairs in such a manner that our parent company is not regarded as tax resident in any jurisdiction other than the Netherlands and, inparticular, is not deemed to be a tax resident of, or to have a permanent establishment in, Russia. Thus, dividends paid from our Russian operatingsubsidiaries to our parent company should generally be subject to Russian withholding tax at a 5% rate. If our parent company were not treated as a Dutchresident for tax purposes or if it were deemed to have a permanent establishment in Russia, or if the Russian tax authorities were to determine that otherconditions for the application of the 5% rate are not met, dividends paid from our Russian operating subsidiaries to our parent company would be subject toRussian withholding tax at the rate of 15%. Moreover, one of the requirements for applying withholding tax at a rate of 5% of dividends under the Russian-Dutch Double Tax Treaty is that theincome recipient should be the beneficial owner of the income. Effective from January 2015, the definition of "beneficial owner" of income for the purposesof application of double tax treaties was introduced into the Russian Tax Code. According to the introduced definition, a company is considered a beneficialowner of income if such person, by virtue of36 Table of Contentsdirect and/or indirect participation in an entity, or control over an entity, or other circumstances, has the right to use and/or dispose of this income, or for thebenefit of which another person is entitled to use the income received. In other words, this is a company that actually benefits from the income paid anddetermines its further economic destiny. In this case, all the functions carried out by such persons as well as the existing powers and the risks taken in respectof the income paid should be taken into consideration. A Russian entity is entitled to request a confirmation from a foreign entity that the latter has thebeneficial right to receive the corresponding income. If beneficial ownership requirements are not met, application of the 5% withholding tax rate may bechallenged by the tax authorities. Russian tax rules are characterized by significant ambiguities and limited interpretive guidance and are subject to change, and we can provide noassurance that dividend withholding tax relief may not be challenged by the Russian tax authorities based on the grounds mentioned above. Furthermore,Russian tax rules regarding residency and beneficial ownership which were recently introduced, may change or interpretation may change, thus triggeringchanges in taxation of dividends from our Russian subsidiaries to our parent company in the future. The recently adopted anti-offshore and controlled foreign corporation (CFC) rules that came into effect in 2015 are generally ambiguous and lackingsufficient interpretive guidance. Based on the current state of the law, we do not anticipate recognition of Russian tax residence as Yandex N.V. does nothave any artificial and non-substantive structures without assets and qualified personnel, and is managed by a Board of Directors consisting principally ofnon-Russian residents. Also, based on the presently available interpretation, we believe that Yandex N.V. and our material subsidiaries should not berecognized as CFCs in 2015. However, there are risks that any these rules may be interpreted or applied in a manner that may have an adverse effect on ourresults of operations.We may be required to record a significant deferred tax liability if we are unable to reinvest our earnings in Russia. Our principal Russian operating subsidiary has significant accumulated earnings that have not been distributed to the Dutch parent company. Ourcurrent policy is to retain substantially all our earnings at the level of our principal subsidiary for investment in Russia. We did not provide for dividend withholding taxes on the unremitted earnings of our non-Dutch subsidiaries in 2013 or earlier years because weconsidered them to be permanently reinvested outside of the Netherlands. In the first quarter of 2014, we began to accrue for a 5% dividend withholding taxon the portion of the current year profit of our principal Russian operating subsidiary that we considered not to be permanently reinvested in Russia. As ofDecember 31, 2014, we had an accrual of RUR 460 million ($8.2 million) for dividend withholding tax. If circumstances change and we are unable toreinvest in that subsidiary's current operations or acquire suitable businesses in Russia, U.S. GAAP would require us to record a deferred tax liabilityrepresenting the dividend withholding taxes that we would be required to pay if this subsidiary were to pay these unremitted accumulated earnings to ourDutch parent company as a dividend, even if such dividends were not actually declared and paid. As of December 31, 2014, the cumulative amount ofunremitted earnings in respect of which dividend withholding taxes have not been provided is RUR 44,787 million. The applicable withholding tax rate is5% and the amount of the unrecognized deferred tax liability related to these unremitted earnings was RUR 2,239 million as of December 31, 2014. Weexpect the amount of unremitted earnings to grow as our principal Russian operating subsidiary continues to generate net income. If we were required torecord a deferred tax liability on an amount subsequently made available for distribution it may have a material adverse effect on our results of operations.37 Table of ContentsAmbiguities in Russian law regarding payments to individuals who are Yandex ad network partners may create employment-related tax obligations orrequire us to limit network partnership and may adversely affect our business, financial condition and results of operations. Ambiguities in Russian law make it difficult to structure payments to third-party individuals for Russian tax purposes. Many of our Yandex ad networkpartners are individuals who own and operate their own websites. We have contractual relationships with third parties, including advertising agencies, whoact as aggregators and that make payments to individual Yandex ad network partners for fees to which they are entitled in connection with the ads we serveon their websites. In the event that an aggregator fails to make any required tax withholding or otherwise comply with applicable laws in respect of suchpayments, the authorities might seek to hold us liable for personal and social taxes or VAT, and may not accept our deduction of these expenses, as the taxauthorities claimed in our tax audit for the years 2010-2012. In 2014, we stopped our cooperation with aggregators but it is possible that the tax authoritiesmay make claims for the prior open years 2013 and 2014.Risks in other countries. In addition to Russia, we currently have operations in other countries in the CIS, including Ukraine, Belarus and Kazakhstan. We may acquire orestablish additional operations in additional countries of the CIS. In many respects, the risks inherent in conducting business in these countries are similar tothose in Russia set out above.Risks Related to Ownership of our Class A SharesThe price of our Class A shares has been and may continue to be volatile. Market fluctuations specific to Russia or developing markets or to high-growthtechnology companies generally may affect the performance of our Class A shares and could expose us to potential securities litigation, which could resultin substantial costs and a diversion of our management's attention and resources. Macroeconomic events in Russia in recent periods have adversely affected the value of traded securities of companies with significant operations inRussia, including our Class A shares. In addition, the market for technology and other growth companies has generally experienced severe price and volumefluctuations that have often been disproportionate to the operating performance of those companies. These broad macroeconomic, market and industryfactors may impact the market price of our Class A shares regardless of our actual operating performance. The trading price of our Class A shares has been and may continue to be volatile and subject to wide fluctuations in price in response to various factors,some of which are beyond our control. These factors include:•macroeconomic and geopolitical developments; •quarterly variations in our results of operations or those of our competitors; •fluctuations in our share of the internet search market; •announcements of technological innovations or new services and media properties by us or our competitors; •the emergence of new advertising channels in which we are unable to compete effectively; •changes in governmental regulations; •disruption to our operations or those of our partners; •our ability to develop and launch new and enhanced services on a timely basis; •commencement of, or our involvement in, litigation;38 Table of Contents•any major change in our directors or management; •changes in earnings estimates or recommendations by securities analysts; •the operating and stock price performance of other companies that investors may deem comparable to us; or •general global or Russian economic conditions and slow or negative growth or forecast growth of related markets. Additionally, volatility or a lack of positive performance in the price of our Class A shares may adversely affect our ability to retain key employees, someof whom have been granted equity awards. In the past, following periods of volatility in the overall market and the market price of a company's securities, securities class action litigation has oftenbeen instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management'sattention and resources. This volatility may affect the price at which holders of Class A shares may sell such shares and the sale of substantial amounts of our Class A shares couldadversely affect the price of our Class A shares.The concentration of voting power with our principal shareholders, including our founders, directors and senior management, limit your ability toinfluence corporate matters. Our Class B shares have ten votes per share and our Class A shares have one vote per share. As of March 15, 2015, our founders, directors and seniormanagement (and their affiliates) together own 80.77% of our outstanding Class B shares and 1.29% of our outstanding Class A shares, representing in theaggregate 57.17% of the voting power of our outstanding shares. In particular, our founder, Mr. Volozh, directly or indirectly controls 56.62% of ouroutstanding Class B shares representing 39.81% of the voting power of our outstanding shares. For the foreseeable future, therefore, our founder, directors,senior management and their affiliates will have significant influence over the management and affairs of our company and over all matters requiringshareholder approval, including the election of directors, the amendment of our articles of association and significant corporate transactions, such as a sale ofour company or its assets. Because of this multiple class structure, these persons will continue to exert significant influence over all matters submitted to ourshareholders for approval even if they come to own fewer than 50% of our outstanding shares by number. In addition, our principal shareholders are parties to a shareholders agreement that, among other things, requires them to vote to elect those directorsnominated by our Board of Directors for election or re-election, and limits their ability to vote in favor of amendments of the anti-takeover provisions of ourarticles of association. This concentrated control limits your ability to influence decisions on corporate matters. We may take actions that our publicshareholders do not view as beneficial or as maximizing value for them. As a result, the market price of our Class A shares may be adversely affected.Our Board of Directors and our priority shareholder have the right to approve accumulations of stakes in our company or the sale of our principal Russianoperating subsidiary, which may prevent or delay change-of-control transactions. Our Board of Directors has the right, acting by simple majority, to approve the accumulation by a party, group of related parties or parties acting inconcert of the legal or beneficial ownership of shares representing 25% or more, in number or voting power, of our outstanding Class A and Class B shares(taken together). If our board grants its approval of such share accumulation, the matter is then submitted to the holder of our priority share, which has afurther right of approval of such39 Table of Contentsaccumulation of shares. In addition, any decision by our Board of Directors to transfer all or substantially all of our assets to one or more third parties,including the sale of our principal Russian operating subsidiary, is subject to the prior approval of the priority shareholder. Any holding, transfer or acquisition by a party, group of related parties or parties acting in concert of the legal or beneficial ownership of Class B sharesrepresenting 25% or more, in number or by voting power, of our outstanding Class A and Class B shares (taken together), without the prior approval of ourBoard of Directors, first, and then the priority shareholder, will be null and void. The acquisition of shares in excess of the thresholds permitted by our articlesof association will be subject to certain notification requirements set forth in our articles of association. Failure to comply with those terms would render thetransfer of such shares null and void. In addition, the holders of such shares would not be entitled to the dividend or voting rights attached to their excessshares. The rights of our Board of Directors and our priority shareholder to approve accumulations of stakes in our company may prevent or delay change-of-control transactions.Anti-takeover provisions in our articles of association and the shareholders agreement among our principal shareholders may prevent or delay change-of-control transactions. In addition to the rights of our board and of the priority shareholder to approve the accumulation of stakes of 25% or more, as described above, ourmultiple class share structure may discourage others from initiating any potential merger, takeover or other change-of-control transaction that our publicshareholders may view as beneficial. Our articles of association also contain additional provisions that may have the effect of making a takeover of ourcompany more difficult or less attractive, including:•the staggered three-year terms of our directors, as a result of which only one-third of our directors are subject to election in any one year; •a provision that our directors may only be removed by a two-thirds majority of votes cast representing at least 50% of our outstanding sharecapital; •the authorization of a class of preference shares that may be issued by our Board of Directors in such a manner as to dilute the interest of anypotential acquirer; •requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a voteupon a proposal by our Board of Directors; •minimum shareholding thresholds, based on par value, for shareholders to call general meetings of our shareholders or to add items to theagenda for those meetings, which will be very difficult for Class A shareholders to meet given our multiple class share structure; and •supermajority requirements for shareholder approval of certain significant corporate actions, including the legal merger or demerger of ourcompany and the amendment of our articles of association. In addition, the provisions of the shareholders agreement described above could have the effect of preventing or delaying a takeover of our company. The Dutch public offer rules, which impose substantive and procedural requirements in connection with the attempted takeover of a Dutch publiccompany, only apply in the case of Dutch target companies that have shares listed on a regulated market within the European Union. We have not listed ourshares, and do not expect to list our shares, on a regulated market within the European Union, and therefore these rules do not apply to any public offer forour Class A shares.40 Table of ContentsWe rely on NASDAQ Stock Market rules that permit us to comply with applicable Dutch corporate governance practices, rather than the correspondingdomestic U.S. corporate governance practices, and therefore your rights as a shareholder differ from the rights you would have as a shareholder of adomestic U.S. issuer. As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted in certain cases to follow Dutch corporategovernance practices instead of the corresponding requirements of the NASDAQ Marketplace Rules. We follow Dutch corporate governance practices withregard to the quorum requirements applicable to meetings of shareholders and the provision of proxy statements for general meetings of shareholders. Inaccordance with Dutch law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable togeneral meetings of shareholders. Although we do provide shareholders with an agenda and other relevant documents for the general meeting of shareholders,Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in theNetherlands. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ's corporate governance rules.We do not comply with all the provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder. As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and best practiceprovisions for management boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure,compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in theNetherlands or elsewhere, including the NASDAQ Global Select Market. The principles and best practice provisions apply to the board (in relation to roleand composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the general meeting ofshareholders (for example, regarding anti-takeover protection and obligations of the company to provide information to its shareholders) and financialreporting (such as external auditor and internal audit requirements). The DCGC requires that companies either "comply or explain" any noncompliance and,in light of our compliance with NASDAQ requirements and as permitted by the DCGC, we have elected not to comply with all of the provisions of the DCGC.This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies withthe DCGC.Because of the secondary listing of our Class A shares on the Moscow Stock Exchange, we are subject to additional disclosure and compliancerequirements that may conflict with those imposed by the SEC and NASDAQ, and we may experience trade fluctuations based on arbitrage activities. In June 2014, we established a secondary listing of our Class A shares on the Moscow Stock Exchange. Pursuant to that listing, we and our insiders mustcomply with certain disclosure and other obligations that may differ in timing and substance from those applicable to our NASDAQ listing. In addition, manyof the obligations imposed by the Moscow Stock Exchange are formalistic in nature, and that exchange has limited experience in the application of itsrequirements to companies incorporated outside Russia. As a result, we may not be able to comply with all formal obligations in a manner that is consistentwith the requirements or interpretations of that exchange. In addition, this secondary listing may create opportunities for trading arbitrage, particularly in connection with currency fluctuations between thetrading in U.S. dollars on NASDAQ and in rubles on the Moscow Stock Exchange, which could impact the trading price of our Class A shares.41 Table of ContentsRisks for U.S. HoldersWe cannot assure you that we will not be classified as a passive foreign investment company for any taxable year, which may result in adverse U.S. federalincome tax consequence to U.S. holders. Based on certain management estimates with respect to our gross income and average value of our gross assets and on the nature of our business, webelieve that we were not a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes for the 2014 tax year, and do not expect to bea PFIC in the foreseeable future. However, because our PFIC status for any taxable year will depend on the composition of our income and assets and thevalue of our assets in such year, and because this is a factual determination made annually after the end of each taxable year and there are uncertainties in theapplication of the rules, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable year. In particular,the value of our assets may be determined in large part by reference to the market price of our Class A shares, which have fluctuated, and may continue tofluctuate, significantly. If we were to be treated as a PFIC for any taxable year during which a U.S. holder held our Class A shares, certain adverse U.S. federalincome tax consequences could apply to the U.S. holder. See "Taxation—Taxation in the United States—U.S. federal income tax consequences to U.S.holders—Passive foreign investment company considerations."Any U.S. or other foreign judgments you may obtain against us may be difficult to enforce against us in Russia or the Netherlands. We have only very limited operations in the United States, most of our assets are located in Russia, our company is incorporated in the Netherlands, andmost of our directors and senior management are located outside the United States. As a result, it may be difficult to serve process on us or these personswithin the United States. Although arbitration awards are generally enforceable in Russia and the Netherlands, and Russian courts may elect to enforceforeign court judgments as a matter of international reciprocity and judicial comity, you should note that judgments obtained in the United States or in otherforeign courts, including those with respect to U.S. federal securities law claims, may not be enforceable in Russia or the Netherlands. There is no mutualrecognition treaty between the United States and the Russian Federation or the Netherlands, and no Russian federal law or Dutch law provides for therecognition and enforcement of foreign court judgments. Therefore, it may be difficult to enforce any U.S. or other foreign court judgment obtained againstour company, any of our operating subsidiaries or any of our directors in Russia or the Netherlands.The rights and responsibilities of our shareholders are governed by Dutch law and differ in some important respects from the rights and responsibilities ofshareholders under U.S. law. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. Theresponsibilities of members of our Board of Directors under Dutch law are different than under the laws of some U.S. jurisdictions. In the performance of itsduties, our Board of Directors is required by Dutch law to consider the interests of Yandex, its shareholders, its employees and other stakeholders and notonly those of our shareholders. Also, as a Dutch company, we are not required to solicit proxies or prepare proxy statements for general meetings ofshareholders. In addition, the rights of our shareholders are governed by Dutch law and our articles of association, and differ from the rights of shareholders under U.S.law. For example, Dutch law does not grant appraisal rights to a company's shareholders who wish to challenge the consideration to be paid upon a merger orconsolidation of the company.42 Table of Contents Item 4. Information on the Company. History and Development of the Company; Organizational Structure. Our founders began the development of our search technology in 1989, and launched the yandex.ru website in 1997. Our principal Russian operatingsubsidiary, Yandex LLC, was formed in 2000, as a wholly owned subsidiary of our former Cypriot parent company. In 2007, we undertook a corporaterestructuring, as a result of which Yandex N.V. became the parent company of our group. Yandex N.V. is a Dutch public company with limited liability. Itsregistered office is at Schiphol Boulevard 165, 1118 BG, Schiphol, the Netherlands (tel: +31-20-206-6970). The executive offices of our principal operatingsubsidiary are located at 16, Leo Tolstoy Street, Moscow 119021, Russian Federation (tel. +7-495-739-7000). For a discussion of our principal acquisitions and disposals in 2014, see "Operating and Financial Review and Prospects—Recent Acquisitions—RecentDisposals."Business OverviewOur Business Yandex is one of the largest European internet companies and the leading search provider in Russia. Yandex's mission is to help users solve theireveryday problems by building people-centric products and services. Based on innovative technologies, we provide the most relevant, locally tailoredexperience on all digital platforms and devices. Yandex also serves Turkey, Ukraine, Belarus and Kazakhstan. We generated 60.9% of all search traffic inRussia in 2014 and 58.0% in March 2015, according to Liveinternet.ru,, and in December 2014 our Yandex sites attracted 67.8 million unique visitors inRussia, and 13.3 million in Turkey, according to comScore MMX. In December 2014, Yandex websites attracted 9.8 million unique visitors in Ukraine and2.5 million in Belarus, according to Gemius, and 2.2 million in Kazakhstan, according to TNS. We utilize our capabilities in applied mathematics and data analysis and our in-depth knowledge of the languages, cultures and preferences of internetusers in our markets to develop advanced search technology and information retrieval services. We also aggregate and organize extensive local, national andinternational content and offer a broad range of additional services. Our search and many of our services are location-based and are available in apps andbrowser versions tailored for mobile and other digital platforms and devices. Benefiting from Russia's long-standing educational focus on mathematics and engineering, we have drawn upon the considerable local talent pool tocreate a leading technology company. For over 20 years, our founding team has been developing and optimizing search technology, which has formed thecore of our business and helped Yandex become one of the best known brands in Russia. Our users are our first priority, and we are committed to advancingour technology to continuously improve their internet experience. Our search engine uses our proprietary algorithms to provide relevant results, which we structure and present in an editorially neutral and user-friendlymanner. With a focus on our principal geographic markets, our search technology allows us to provide local search results in more than 1,500 cities. We alsofeature "parallel" search, which presents on a single page the results from both our main web index and our specialized information resources, including news,shopping, blogs, images and videos. We offer convenient access to our search engine through personal computers, mobile phones, tablets, and navigationand other digital devices. We also offer a wide range of specialized search, personalized and location-based services, including Yandex.News,Yandex.Market, Yandex.Mail, Yandex.Maps and Yandex.Auto.43 Table of Contents Our homepage provides a gateway to the wealth of information available online. Users can find answers to their explicit questions through our searchbox, as well as their implicit questions through current news, weather and road traffic reports, TV and movie schedules, personal email and other services. Ourhomepage can easily be customized by users to address their individual interests. We derive substantially all of our revenues from online advertising. We enable advertisers to deliver targeted, cost-effective ads that are relevant to ourusers' needs, interests and locations. Most of our revenues are derived from text-based advertising, which uses keywords selected by our advertisers to deliverads based on a particular user query, the content of a website or webpage being viewed, or user behavior or characteristics. We derive a smaller portion of ourrevenues from display advertising, which principally consists of graphical ads that appear on specific webpages. Our ads are clearly marked and are separatefrom our organic search results and from the content of the webpages on which they may also appear. We do not serve intrusive ads, such as "pop-ups," thatmight detract from our users' experience. In addition to serving ads on our own search results and other webpages, we deliver ads to the thousands of third-party websites that make up our Yandexad network. Through our ad network, we generate revenue for both our network partners and us and extend the audience reach of our advertisers. OurYandex.Direct service, the largest automated, auction-based system for the placement of text-based advertising in Russia, makes it easy for advertisers to bidfor desired keywords and to obtain the best price for their ads. We served ads for 317,000 advertisers in the fourth quarter of 2014 and 558,000 in the full year2014, compared with 277,000 in the fourth quarter of 2013 and 460,000 in the full year 2013.Our Services for Users We offer a broad range of search, location-based, personalized and mobile services that are free to our users and that enable them to find relevant andobjective information quickly and easily and to communicate and connect over the internet, from both their desktops and mobile devices.Yandex Search Our search engine offers almost instantaneous access to the vast range of information available online. We utilize linguistics, mathematics and statisticalanalysis to develop proprietary algorithms that efficiently extract, compile, systematize and present relevant information to users. Our organic search resultsare ranked by computer algorithms based exclusively on relevance, and we clearly segregate organic results from paid results to avoid confusing our users.Our advertising services do not affect the way we generate or rank our organic search results because we do not accept payment for rankings or for inclusionin our organic search results, or allow parties to pay to include additional pages in our web indexes. Our anti-spam protection detects and downgrades pageswith low informational content, made-for-advertising and "doorway" sites, pages with pop-under banners, content farms and scraped-content pages. We donot manipulate or interfere with our search algorithms in order to favor paid or affiliated sites or services, including those of our Yandex ad network partners,and do not adjust for political censorship. We supplement the results from our main web index with results from our "parallel" search system, which blendslistings from all available Yandex specialized and vertical searches according to their relative relevance, such as Yandex.News, Yandex.Market,Yandex.Maps, Yandex.Auto, Yandex.Realty, Yandex.Music, Yandex.Images and Yandex.Video. Yandex search is responsive to real-time queries,recognizing when a query requires the most current information, such as breaking news or the most recent post on Twitter on a particular topic, andpresenting these results graphically separated from other search results. We are also increasingly focusing on social networking search, and have enhanced the social component of search by integrating data from the largestRussian social networks, including VKontakte,44 Table of ContentsLiveJournal and Odnoklassniki, as well as the full feed of all public posts on Twitter. In 2014, we announced our agreement with Facebook, which providesus with full access to the social network's "fire hose" of public data. Public content from Facebook users in Russia, Ukraine, Belarus, Kazakhstan, other CIScountries and Turkey is available for indexing by Yandex as soon as it has been published. We also offer personalized search that provides search suggestions as well as search results that are highly aligned with individual interests of our users.Our Spectrum search technology is designed to capture the entire range of possible meanings, based on query statistics. We seek to enhance our searchcapabilities by regularly expanding our algorithms to process additional languages, including most European languages, and our index of internationalwebpages. We continuously strive to develop innovative new concepts for our search engine, in addition to existing programs and concepts, such as Dublin,Islands and Atom. Dublin offers users better personalized searches based on both their short-term and long-term interests. Islands allows our users to interactwith websites directly from the search engine results page where answers are presented in the forms of blocks accommodating various kinds of informationincluding texts, videos, pictures, and interactive information. Atom allows any web resource to be personalized, even if a user has not visited the webresource before but has a search history at Yandex.Mobile Search and Applications We offer our search and many other services in mobile browser versions and apps designed for an optimal user experience on mobile devices. We supportmobile phones, tablet devices, internet-connected TVs and navigation devices. Yandex is currently included as the default search engine on certain mobilehandsets sold in Russia, and as one of the search options in the Safari browser on Apple devices running iOS7 and iOS8. Our services and applications arealso distributed by a number of OEMs, retailers, browser makers, and telecom operators in Russia. We believe that these efforts are an important part of ouroverall marketing strategy and serve to increase our user base. We offer a number of apps for mobile devices running iOS, Android and Windows Phone operating systems. The largest of them are Yandex.Browser andYandex.Search, Yandex.Maps, Yandex.Navigator, Yandex.Metro, Kinopoisk, Yandex.Mail, Yandex.Store, Yandex.Transport, Yandex.Weather,Yandex.Market and Auto.ru. Other popular apps include Yandex.Disk, Yandex.Music, Yandex.Timetables, Yandex.Translate, Yandex.Taxi andYandex.Kinoafisha. We are continuing to expand the scope of our mobile offering with respect to both apps and platforms and offer a number of popularappa,Yandex.Transport, Auto.ru and Yandex.Taxi being among our most rapidly growing apps in terms of number of monthly users in 2014. Yandex.Transport. Our mobile application that provides public transport schedules, with real-time information and live arrival times. We launched it in13 Russian cities in spring 2014, and added Moscow in early 2015. After the launch in Moscow, the number of monthly active users more than tripled, andYandex.Transport entered the Top-20 list of the mobile apps we offer. Auto.ru. We completed the acquisition of Auto.ru in late 2014 and have continued to improve its mobile presence and monetization, more thandoubling mobile usage of this service. We re-launched mobile apps for iOS and Android in 2014. Yandex.Taxi. Our online taxi service processed several million orders in 2014; approximately 90% of them were ordered through the mobile app. The percentage of our total search traffic that was generated from mobile devices increased from approximately 16% in the further quarter of 2013 toapproximately 24% in the fourth quarter of 2014, while the percentage of our total revenues generated from mobile devices increased from approximately12% to approximately 18% between those periods.45 Table of ContentsYandex Homepage Our homepage provides a gateway to the wealth of information available online. Users can find answers to their explicit questions through our searchbox, as well as to their implicit questions through current news, weather and road traffic reports, TV and movie schedules, and other services. We also offerlocalized homepages for specific geographic markets. We launched our Ukrainian homepage yandex.ua in 2005, our Kazakh homepage yandex.kz in 2009,our Belarusian homepage yandex.by in 2010 and our Turkish homepage yandex.com.tr in 2011. Yandex automatically detects users' locations based on theirIP addresses and defaults to the relevant local homepage. We are focused on providing an increasing amount of content in the local language and believe thatwe provide better support for local language search in these markets than our competitors.Specialized Search Services In addition to our core search engine, we offer the following specialized search services:•Yandex.News. Our news aggregation and information service, the most visited online news aggregation service in Russia, providing acomprehensive media overview for our Russian, Ukrainian and Turkish audiences. We aggregate and present local, national and internationalnews, currently from more than 6,600 news sources worldwide. The selection of news is fully automated and neutral from an editorialperspective. •Kinopoisk.ru. The largest Russian language website dedicated to movies, television programs and celebrities. The service allows users to readexpert and user-generated film reviews, discover the most popular movies, watch trailers, get movie news and personalized recommendations,as well as show times and tickets. •Yandex.Music is our music streaming service, which is offered as both a web service and an app for all three major mobile platforms. It offersmillions of tracks from both major global publishers and indie groups. In 2014 a new recommendation tool was implemented to help usersnavigate the vast number of songs and albums as well as to discover new music. The web version can be enjoyed for free, while the mobile appoffers basic "radio" functionality free of charge and other functions, including music downloads, for a monthly fee after a trial period. •Yandex.Master. A new service through which users can quickly and efficiently find local professionals to do work around their homesincluding cleaning, renovations, plumbing and other handiwork. •Auto.ru. One of the most popular automobile-related websites in Russia, operating the largest and most detailed classifieds catalog for newand used cars in Russia. •Other Specialized Search. We provide numerous other targeted and seasonal search services, including for images, video, music, television,weather, jobs, transportation, cars and real estate.Personal Services Yandex.Mail. Yandex.Mail provides users with fast and easy access to their email accounts, featuring a dynamic user interface and socialauthentication via their accounts on VKontakte, Odnoklassniki, Facebook, Google, Mail.ru or Twitter. A number of features are available to enhance users'experience, including threaded and unthreaded views; direct access to Yandex.Disk, Yandex.Money, and other Yandex' services; auto-tagging, whichautomatically recognizes and tags certain types of emails (for example, those from social networks, e-tickets and calendar events); smart first lines, whichallows our users to see the first line of any email in their inbox without having to open it; and Address Book, which recognizes both Latin and Cyrillictransliterations of names, and46 Table of Contentsaggregates all emails from the same sender regardless of the language used. Yandex.Mail also features an unsubscribe button allowing users to opt out frommailing lists in a single click. Our Yandex.Mail app is available to Android and iPhone users. We introduced a new version of the Yandex.Mail app for Android in September 2014 andfor iOS in April 2015. It allows users to work with multiple email accounts, filter and sort emails using Marker, our machine-learning technology that canrecognize an email type, and compose emails offline, and offers a number of other features. Our mobile "push-email" technology allows for the instantaneousdelivery of new emails to mobile inboxes. Yandex.Mail also offers users the ability to create personal domain email accounts, with all the features availableto users of Yandex.Mail. We seek to offer email free of spam and viruses, and our users can choose not to view ads on this service. Our users' accounts are protected by ourproprietary server-side spam filtering solution, which performs comprehensive analysis of thousands of email properties, measuring their significance andensuring precise filtering of spam, while distinguishing legitimate emails including legitimate automated or list mails. Our spam filter also adaptively"learns" a user's personal preferences so that it can effectively include or filter out emails based on their individual history. Our proprietary Markertechnology recognizes different types of correspondence such as notifications from social networks and internet stores, electronic tickets or notices aboutdiscounts, and offers the user appropriate tools to work with these items. Yandex.Disk. Our Yandex.Disk service is a cloud-based storage service that allows users to upload, store, read and share files in various formats andsizes. Users can store photos, videos or documents online so that they can be accessed at any moment from any device—PC, laptop, tablet or smartphone.Yandex.Disk provides users with tools such as editing screenshots, adding filters to photos, listening to music files and watching videos via its platform. TheYandex.Disk mobile app is available for iOS, Android-based and Windows Phone smartphones. With the Yandex.Disk app, working with files and folders canalso be managed offline. The app's interface also allows users to post photos from social networks and store photo albums in Yandex.Disk. Yandex.Disk alsoserves as a basis for our Yandex.Pereezd (or Move) service which helps users transfer all their data when changing their mobile devices.Maps and Location-based Services Yandex.Maps. Our Yandex.Maps provide high-quality, detailed maps of more than 1,100 cities and towns in Russia and more than 240 cities inUkraine, Kazakhstan and Belarus, as well as a detailed map of Turkey. In addition to graphical maps, we offer satellite images and hybrid maps (anamalgamation of satellite images and graphic maps), panoramic views, public transportation routes and driving directions in browsers and mobile deviceapplications. Our mobile version of Yandex.Maps allows users to determine their location, find nearby businesses, monitor traffic conditions along particular routesand determine the best routes based on real-time traffic updates. Mobile Yandex.Maps is available on a variety of mobile platforms. We believe thatYandex.Maps is among the most popular mobile applications in Russia. Yandex.Maps is also available via application programming interfaces, or APIs, which allow web developers to embed and use interactive maps in third-party websites for free, together with the ability to add extra layers of information—for example, to offer a map showing the location of a restaurant or a hotel. We have partnerships with local directories that allow us to integrate local business listings, recommendations and user reviews in our maps. Our Geo-Direct Business Directory service enables advertisers to pay for premium placement in order to enable users to find them more easily.47 Table of Contents We use our technology and licenses to create and edit maps from raw data, including satellite images, GPS tracks and live user feedback. Our in-houseteam of skilled cartographers allows us to keep our maps fresh and up-to-date and to offer location-based services to our users. This service also integrates ourPublic Map, a crowd-sourced service that presents user-generated local maps and data. We also offer real-time traffic congestion monitoring in key cities through Yandex.Traffic, the most popular service of its kind in Russia, featuringdetailed maps supporting the route planning feature for the majority of large cities in the world on both desktop and mobile. We were the first service of thiskind in Russia, and we believe one of the first in the world, to use GPS data from users' mobile devices (in anonymous form and with user consent) inassembling our real-time congestion information. Yandex.Navigator. Yandex.Navigator is our free standalone mobile application providing turn by turn navigation and incorporating our real-timetraffic information. Yandex.Taxi. Yandex.Taxi is one of the most popular online taxi booking services in Moscow and is available in a number of other cities acrossRussia. Today the service works with over 100 Russian taxi companies. The number of orders from mobile devices is continuously growing and nowrepresents more than 90% of all orders within the service. Yandex.City. In 2014, we launched Yandex.City, an app, providing info on businesses and organizations in Russia. Yandex.City currently has one ofthe largest databases of user reviews of companies and organizations in Russia, provided by both partner companies and individual users. With its own fact-extraction technology, Yandex.City analyzes users' comments and adds the most valuable information on the service. Yandex.Transport. In March 2014 we launched our Yandex.Transport mobile app providing users with real-time data on public transport in a numberof Russian cities. With Yandex.Transport users can check when a bus, tram or trolleybus they are waiting for will arrive at their stop and where it is now. Earlyin 2015 Moscow was added to the list of supported cities.Yandex.Browser Our browser makes surfing the internet safe and convenient. It is based on the Chromium open source license, Yandex's own technologies and cloud-based services. The WebKit engine, supported by many browser developers, is supplemented by Opera Software's Turbo technology, which we license,speeding up the download of pages even with slow connections. It also features Yandex's proprietary anti-virus protection as well as built-in Kaspersky Labs'ssecure system. Our browser also provides our proprietary translation capabilities. Yandex.Browser is also able to re-establish broken file loading, has anautomatically compiled tableau menu, synchronization between desktop and mobile versions, and "quick call" capability, among other things. We also offermobile versions of Yandex.Browser for iOS and Android smartphones and tablets. In November 2014 we introduced a new, streamlined alpha version of our browser. It reflects the current trend in web user experience putting an emphasison interaction and personalization. It is designed to respond to all the current needs of a web user, which are no longer limited to mere browsing, but now alsoinclude shopping, reading websites in a foreign language, and booking flights, trains, taxis, hotel rooms and restaurant tables. Yandex.Browser also serves as an instant information source providing answers to some of the most popular queries. After typing a search in the browser'ssmartbox, the user can see a snippet about what they are searching for—a thing, a product, a person or an event—without having to look at the search resultspage.48 Table of Contents The share of searches processed through Yandex.Browser in Russia reached 12.9% in March 2015, and our browser's share in terms of the number ofvisitors (cookies) on the Russian browser market was 7.9% in March, according to Liveinternet.ru.Our Monetization and Advertiser Services We offer advertisers both text-based advertising and display advertising. We also offer Yandex.Market, our e-commerce gateway service, which providesanother platform for retailers to reach consumers in a highly targeted manner. Text-based ads are principally targeted to the particular user query, the content of a particular website or webpage being viewed or user behavior orcharacteristics and are generally used to generate specific sales. Such ads are clearly marked as paid advertising and are separate from our organic searchresults. Display ads, which principally consist of graphical ads that appear on specific pages, are generally used to increase brand awareness or generatedemand for particular products or services. Most of our revenues are generated from text-based advertising, on a pay-per-click basis, with a smaller portiongenerated from display advertising, based on the number of impressions delivered. We now offer some of the merchants participating in Yandex.Market anopportunity to sell goods and services using a CPA model. In addition to targeting ads on the basis of user queries and website content, we are also able totarget ads on the basis of users' demographics as well as behavioral patterns, characteristics and locations, and have developed algorithms that can predictwith a high degree of accuracy the age and gender of a user based on behavior, as well as a probability of click. We actively monitor the ads we serve, both automatically and manually, in order to help ensure the relevance of the ads as well as compliance withapplicable laws.Yandex.Direct Yandex.Direct is our auction-based advertising placement service, which uses the most advanced auction theory and relies on our distributedinfrastructure to process millions of auctions every day. Yandex.Direct lets advertisers cost-effectively deliver relevant text-based ads targeted at particularsearch queries or content on Yandex websites or third-party websites in the Yandex ad network. Yandex.Direct enables advertisers to present ads to users atthe precise moment they are looking for information related to the advertiser's product or service. Advertisers may use our automated tools, often with little orno assistance from us, to create text-based ads, bid on keywords that are likely to trigger the display of their ads, and set total spending budgets.Yandex.Direct features an automated, low-cost online sign-up process that enables advertisers to create and quickly launch their advertising campaigns.Advertisers may access Yandex.Direct through interfaces in Russian, Ukrainian, English and Turkish. Advertisers may also work with our sales staff to designand implement more specialized or sophisticated advertising campaigns. We also offer a Yandex.Direct mobile app to better facilitate advertisers' access toour service to manage their advertising campaigns. Text-based ads on the search engine results page (SERP) appear in one of several general categories: top placement (appearing above the organic searchresults and featuring up to three paid links), southern block (appearing below the organic search results and featuring up to four paid links), or guaranteedplacement and rotation (both appearing to the right of the organic search results, up to nine paid links in total). Placement in a particular category isdetermined by the revenue generation potential of the ad—its cost-per-thousand-SERPs (CPT), which is a product of the click-through-rate (CTR) and thecost-per-click (CPC). Within a given category, ads are ranked based on their CPC. To get into the top placement, ads must have the highest CPT and mustexceed a defined CPT threshold. Our technology allows us to identify most spam ads, which are usually placed in large numbers by a single advertiser and have a very low CTR. In orderto discourage spamming behavior we automatically increase the minimum bid for such ads.49 Table of Contents In addition, Yandex.Direct identifies ads that contain information that is subject to mandatory legal licensing or disclaimer requirements, such as ads forpharmaceuticals, and places the required legal disclaimers next to them. Yandex.Direct offers advertisers the following additional benefits: Access to the Yandex ad network. Yandex.Direct provides advertisers with an extended reach, beyond Yandex's own sites, to thousands of partnerwebsites, including paid search on Rambler, Bing and Mail.ru search engine results. Effective advertising campaign management. Yandex.Direct gives advertisers hands-on control over most elements of their online ad campaigns. Forexample, advertisers can specify the relevant keywords for each of their ads or manage expenditures by setting a maximum budget and determining howmuch they are willing to pay per click. We also offer a number of features that make it easy to set up, manage and monitor the effectiveness of advertisingcampaigns, including:•Professional and Easy Interfaces. We offer both Professional Interface, which allows advertisers to control and customize every element oftheir campaign, and Easy Interface for novice advertisers. All settings in the Easy Interface are set automatically to maximize campaignefficiency. •AutoFocus and Additional Relevant Keywords. Our automated AutoFocus system refines keywords associated with specific ads based onusage statistics to increase ads' CTR. This system is used only if the ad is close to being suspended from appearing on the SERP as a result of alow CTR. Our Additional Relevant Keywords feature, on the other hand, is designed to automatically expand keyword phrases to increase thechance of an ad appearing on the SERP. •AutoBroker. Our AutoBroker auction feature automatically adjusts pricing so that our advertisers never pay more than one unit over the nexthighest bid for a given keyword. This system saves advertisers money by minimizing the price they pay per click, while relieving them of theneed to constantly monitor and adjust their CPCs •Metrica. Yandex.Metrica, the most popular web analytics system in Russia, allows advertisers in near real-time to analyze the "post-click"behavior of users to evaluate the key efficiency parameters of their advertising campaigns. For example, they can analyze the conversion rate(the proportion of visitors who make a purchase or another desired action out of the total number of visitors to the website), and the cost ofattracting visitors who perform the required action. Based on this data, our advertising customers are able to choose the most efficient toolsand settings for their advertising campaigns. In 2014 we launched beta-testing of our new Metrica 2.0 which offers wide-ranging possibilitiesto analyze the data. This version offers more than 50 parameters that can be manipulated by users as they wish, allowing site owners to createcustom reports with any sets of parameters in just a few clicks. •Virtual Business Cards. Virtual Business Cards allow businesses that do not have their own websites to quickly prepare a short webdescription of their products or services, together with contact information, which will be served as ads where relevant. This feature isimportant in the countries in which we operate, where many small businesses do not have websites.Display advertising In addition to auction-based sales of text-based ads, we offer display ads, generally designed to build brand awareness and promote products and/orpoints of sale. We allow advertisers to place display ads on our homepage as well as several other services, including Yandex.Mail, Yandex.News andYandex.Music. More than half of our revenues from display advertising are generated from our homepage banner. Display ads are generally priced on a CPMbasis.50 Table of Contents We also offer a media-contextual banner, a display product that is only shown to users who search for certain topics on Yandex.Search or visit sites of theYandex ad network dedicated to a particular area of interest. Our Crypta technology, which is rooted in our proprietary machine learning mechanism MatrixNet, allows us to differentiate users according to theirsocial-demographic characteristics and use this data to better target display advertising. Through our Real Time Bidding platform, we offer a technological platform that accommodates interaction between advertising placement systems thathave different interfaces, algorithms and terms of displaying ads. Our Real Time Bidding platform allows these systems to participate in a single auctionamong participating placement systems, including Yandex's own advertising system, Yandex.Direct and AWAPS. We are constantly experimenting with new advertising offerings. In February 2014, we announced our advertising partnership for Real Time Biddingwith DoubleClick Bid Manager, Google's demand-side platform, which will be connected to Yandex's Real Time Bidding system, while Yandex's demand-side platform, AWAPS, will be connected to Google's real time bidding marketplace, DoubleClick AdExchange. Integration of the platforms is underway. In September 2014 we acquired the ADFOX advertising technology platform, providing services for planning, managing and analyzing advertisingcampaigns on the internet, and allowing its clients to place banners, mobile ads, videos and other popular formats.Yandex Ad Network Our Yandex ad network partners include search websites, for which we provide search capabilities, as well as contextual network partners, where we serveads based on user behavior or characteristics or website content. Among our partners are some of the largest websites on the Russian internet, includingMail.ru, Rambler, Bing, Livejournal, Avito.ru and others. We help third-party website owners monetize their content while extending the reach of our advertisers. Through the Yandex ad network, our partnerscan deliver text-based and display ads on their search results pages or websites. Our technology delivers relevant ads by analyzing the search results orcontent of partner websites and pages, as well as the search history, behavioral patterns and location of users. Our advertising algorithms use our proprietaryMatrixNet technology, which optimizes CTR on our network through improved click prediction. In order to provide the best user experience, we allow ourusers to opt out of personalized ad targeting on network partner sites by changing the settings through our homepage. We screen applicants for the Yandex ad network and favor websites with high-quality content and stable audiences. We believe that we will continue toattract high-quality websites to our network due to our solid relationships with advertisers, our track record in monetizing internet traffic and content, and ourattractive revenue-sharing propositions. We monitor the conversion rate from our partner websites, seeking to maintain it at an appropriate level, comparable to the conversion rate from oursearch engine results page. If conversion rates are lower than such level, we proportionally reduce the CPC for clicks from such sites to protect our advertisersfrom low-quality traffic. We share a significant portion of the revenues generated from ads displayed on the sites of Yandex ad network partners with those partners. To date, wehave not guaranteed any minimum revenues to our network partners but may consider doing so on a selective basis in the future. We believe that the key benefit we offer to content owners in the Yandex ad network is convenience and cost-effective access to advertisers. Many smallwebsite operators and content51 Table of Contentsproviders do not have the time or resources to develop effective programs for generating revenues from online advertising. Even larger websites, withdedicated sales teams, may find it difficult to generate revenues from pages with a disparate range of content and to attract a broad and diverse range ofadvertisers. The Yandex ad network provides effective revenue generation by providing partners, including very small websites, with access to our large baseof advertisers and their broad collection of ads.Yandex e-Commerce Services Yandex.Market. Our Yandex.Market e commerce gateway service gives retailers an additional platform to reach customers seeking specific retailer,product or price information. Retailers submit their product catalogues and price lists to us in a structured online format, enabling us to provide detailedinformation in response to relevant user queries, either through our search engine or our Yandex.Market service. Yandex.Market is priced on a CPC basis,similar to Yandex.Direct. Yandex.Market also operates a CPA model offering participants a single shopping basket for the service. Launched in 2000, Yandex.Market is the most popular such service in Russia, providing product information, price comparisons and consumergenerated reviews of products and online retailers. We aggregate price, product and availability information from thousands of active online and "brick andmortar" retailers, and currently feature more than 70 million offerings in more than 160 product categories from over 16,000 participating retailers. Theservice also offers a cost per action (CPA) model and a unified basket for purchases on various partnering shops. Yandex.Market, aims to accommodate the needs of international retailers wishing to sell their products to Russian customers by utilising all the benefitsof a technologically advanced platform. Yandex.Market offers international web stores an opportunity to showcase their offers and to target those customerswho look to buy products specifically outside of Russia. Product search on Yandex.Market is designed to deliver the most relevant results with the bestcombination of customer service criteria, including time of delivery or specific payment options, giving domestic retailers an edge over internationalcompanies who are often limited in their customer service opportunities in Russia. Any online store anywhere in the world can join Yandex.Market byproviding customers with a landing page in Russian, an opportunity to have their purchase delivered to a Russian address, as well as an opportunity to payfor purchases in Russia via a bankcard or electronic money. Dozens of retailers, including China's LightInTheBox and DHGate, Germany's Kidsroom.de andWitt International, a US website RevolveClothing, and Italian Yoox, are already offering their products to Russian consumers via Yandex.Market, and we aredeveloping new functionality that would facilitate increased access to international retailers. In December 2014 Yandex acquired Sovetnik, a Russian start-up offering an e-commerce browser extension. It allows users to check prices for goods andproducts in any browser by suggesting price comparison for the same product in Yandex.Market. We are currently developing an online tool to aggregate logistic operators, which will be responsible for offline work, such as assortment of goods, pickup of orders from e-shops and distribution among delivery services.Yandex Location-Based Priority Placement Through partnerships with dozens of regional business directories, we compile and update our own Yandex.Spravochnik—a business directory coveringthe whole of Russia and other neighboring countries. We supplement the business directory with data mined from the web, as well as with direct submissionsfrom participating businesses. Yandex.Spravochnik data appear both in our search results and on our maps, including our mobile application, in response tosearch queries within the specified area.52 Table of Contents Our Geo-Direct Business Directory service allows businesses to pay for a premium placement on our maps, including maps returned in our search results,highlighting their address and allowing users to access their contact details with a single click. This advertising product is designed first and foremost forsmall and local businesses—for example, hairdressing salons and auto repair shops, as well as restaurants or bank branches. We offer this service for a fixedprice on a fixed-term basis, and it can be ordered through our regional partners and advertising agencies, as well as directly through our online interface.Yandex for Businesses We offer a number of services and tools designed for businesses, including:•Yandex Data Factory. In December 2014, we launched Yandex Data Factory aimed at developing big data solutions for businesses andresearch institutions. Yandex's unique proprietary technologies applied in its own products are now available to help businesses turn largevolumes of data they possess into business insights, thereby increasing sales, cutting costs, optimizing processes, preventing losses,forecasting demand, developing new or improving existing methods of audience targeting. •Yandex.Webmaster. Our service allowing webmasters to control how their website is "seen" by our search engine. This tool enableswebmasters to tag certain information on their websites to facilitate the extraction and structured presentation of relevant information by oursearch engine through our enhanced snippets and fast links features. •Yandex.Metrica. In addition to helping advertisers, our powerful web statistics analysis tool allows website owners or webmasters to measuretraffic to their sites, see where the traffic is coming from, track visitor behavior, record time spent by visitors on a webpage. •Yandex Site Search. A search tool we offer to webmasters and website owners, which allows them to provide their users with searchfunctionality on their own websites. •Yandex.Mail for Domain Owners. Our service allowing users to create email accounts with their own domain names. The owner of onedomain can have up to one hundred accounts—enough to serve a small business or the staff of a school. •Yandex APIs. Our APIs enable developers to use Yandex technologies in their own businesses. For example, developers can embed ourYandex.Maps service and use its functionality for free. In addition to Yandex.Maps, we offer APIs of Yandex.Elements, Yandex.Direct andYandex.Translate. •SpeechKit Cloud. SpeechKit Cloud, our voice recognition software development kit, understands Russian and Turkish and is aimed atdevelopers of both web services and mobile apps. It is used in hundreds of mobile apps and serves as a basis for our own Yandex.Diktovka(Dictation) mobile application, which is able to recognize users' speech, turn their words into a transcription and then voice them over, ifneeded. •Yandex.Money. Yandex.Money, the secure online payment system, offers an easy way to pay for goods and services online. Launched in2002, Yandex.Money currently has more than 20.0 million registered users and is used as a payment solution by more than 76,000 onlinestores. According to TNS, Yandex.Money is Russia's most well-known and widely used payment service: 87% of Russians are familiar with it,and 22% regularly use Yandex.Money to make payments. Yandex advertisers can also use Yandex.Money to pay for advertising placedthrough Yandex.Direct. In July 2013, we sold a 75 percent (less 1 ruble) interest in our Yandex.Money business to Sberbank and entered into ajoint venture arrangement with Sberbank in respect of the operation of Yandex.Money.53 Table of ContentsOur Technology We have achieved our leading position in the Russian search and internet markets principally by employing world-class talent in the development of ourkey technologies. Although we have from time to time acquired businesses with technologies that we have integrated into our service offerings, all of our keytechnologies have been created and developed in-house. Together, these technologies constitute state-of-the art internet search, user services and advertisingplatform.Internet search technologies Our search technologies allow us to sort through a vast and growing amount of information in our online indexes to deliver relevant and useful searchresults in response to user queries. The key components of our internet search technologies include the following: Language understanding. We believe that the continuing success of Yandex in Russia is built on our long-term emphasis on the linguistic analysis ofboth webpages and user queries. In Russian, a word may have dozens of different morphological forms with basically the same meaning. Yandex was one ofthe first web search engines to pioneer the incorporation of linguistics into search technology in Russia. We have expanded our original language analysis capabilities from an understanding of morphology (relating to word stems) into an advancedunderstanding and analysis of word classification, synonyms, acronyms, abbreviations, orthographic variants, cross-language transliteration and querytranslation. By combining linguistic knowledge with statistics from large data sets and from query and click-through logs, we have built our spellingsuggestion and correction algorithms, as well as Spectrum, our query categorization technology. Our Autocomplete feature aims to predict the meaning ofusers' queries, maximizing their satisfaction with the search results. The wide spectrum of search results returned are intended to match different user intentsand are based on the frequency of user searches of particular terms. Another Yandex technology feature based on language understanding is our factextraction feature, which we use widely throughout our services. For example, in web searches, this feature extracts names of persons and companies andscans geographical addresses to tag pages and sites geographically. The fact extraction feature is also a core component of our data provision used widelythroughout our specialized search services. To make our search more personalized, in 2011 we introduced Reykjavik, our search platform delivering search results based on user languagepreferences. We built on this foundation to introduce our latest search platform, Kaliningrad, in late 2012. This platform offers personalized search, whichreturns search results and search suggestions based on the individual interests and preferences of users, determined by analyzing their search history, clickson results and language preferences. In 2013, we enriched our personalized search with implementation of Dublin technology that takes into accountimmediate user interest. We continue to innovate and improve our language analysis technologies both through a deep understanding of Russian-language semantics, syntaxand morphology and by enhancing our language understanding of other languages, including Ukrainian, Kazakh, Tatar, Belarusian and Turkish. Machine-Learned Ranking. Ranking is the process of finding the webpages most relevant to a user query and presenting them in the order mostconvenient for user consumption. Our search technologies use hundreds of different factors, both query-dependent and query-independent, to determine therelevance of a webpage to a particular search query. Our ranking technology relies heavily on statistical machine learning techniques. In addition, our teamanalyzes click-through data to monitor relevance, and also maintains a database of tens of thousands of examples rated by human assessors which allows usto approximate human intuition without the need for a detailed understanding of all the concepts involved in semantic analysis.54 Table of Contents Our MatrixNet machine learning technology runs on hundreds of computers simultaneously and allows our search service to take into account tens ofthousands of factors when considering the relevance of search results, which enables us to fine-tune our ranking algorithm. MatrixNet significantly improvesthe relevance of the search results we deliver. Our ranking features are numeric parameters that define both the general quality of a webpage and how well it matches a search query. The rankingfeatures also take into account the geographic and temporal circumstances and properties of the user, the site and the query. We work hard to discover newand high-quality features and to use them effectively to increase user satisfaction. Each ranking feature is the result of significant research and analysis. Ourefficient and automated machine-learned ranking technology helps us to keep our ranking algorithms up-to-date, as both the web and user interests rapidlyevolve. Web crawling technology. We believe that having the most thorough and complete website databases in the Russian and CIS markets is an importantcompetitive strength. Our search index includes billions of webpages, many of which are in English and other major European languages other than Russian. To find pages relevant to user queries, Yandex builds a map of the internet (a web-graph), which describes how different webpages are connected to eachother. By continuously evaluating this web-graph as new pages are added, Yandex is able to choose high-quality pages even before it "crawls" them. Ourintelligent content sourcing system measures page quality in real time, allowing Yandex to discover pages with breaking news within minutes of their uploadon the web and return them as results to related user queries. Content-Based Image Retrieval. Our content-based image retrieval and image recognition technologies allow us to process billions of images in ourimage search. One of the key features is our face-detection algorithms, which can identify individual and group facial portraits in the face-filter feature of ourimage search. Our technologies are able to detect and/or search for image duplicates and semi-duplicates on the web.Advertising technology Our advertising platform supports both contextual and behavioral ad targeting. It places ads both on Yandex pages and on partner sites through theYandex ad network. Our advertising platform operates on a 24/7 basis, relying on servers located at data centers in multiple locations that provideredundancy and the ability to compensate for system faults. Our advertising platform provides advertisers with powerful interactive tools, enabling them tocontrol their campaigns in real time, as each event (ad display or user click) becomes known to the advertiser within minutes of the event. Our ad platform also supports the ad serving and auction features for Yandex.Market listings, as well as serving display ads, which can be accessed asseparate products as well as in a common auction with Yandex.Direct. Our ad platform allows display advertisers to analyze search behavior and userdemographics to target ad campaigns towards specific groups of web users and their specific needs. Our click-fraud prevention technology detects situations in which malicious parties simulate real-user behavior and produce fraudulent clicks. There aregenerally two types of click fraud. In the first, a party, usually an advertiser's competitor, repeatedly clicks on an ad in the search results to run up theadvertiser's expenditures. In the second, a member of the Yandex ad network repeatedly clicks on an ad served by Yandex.Direct on that member's website.Click fraud prevention is critical in providing a healthy ad marketplace and in maintaining the confidence of our advertisers. We analyze our logs in order tounderstand typical patterns of both natural and artificial click behavior, and use these patterns to detect and filter fraudulent clicks both in real time and afterthe fact. We continuously update these algorithms to detect new patterns of fraud.55 Table of Contents Our Real Time Bidding, or RTB technology, enables interaction between ad placement services with different interfaces, impression algorithms andplacement conditions. It allows different services to take part in auctions together and ties the RTB system that organizes an auction together with websitesselling ad impressions, as well as with ad placement systems, known as Demand Side Platforms or DSPs, which buy ad impressions for advertisers, while eachDSP may have any number of advertisers placing ads through its service. During a short time period after a user opens a website participating in our RTBsystem, several actions takes place almost simultaneously: the site informs the system that it is ready to display an ad, it transmits information about certaintechnical parameters (ad format, site address and so on) as well as the user's identification number to the RTB system, which transmits this information toauction participants. DSP systems analyze the attractiveness of the impression and submit their bids, based upon two factors: advertisers' demand (targetaudience, price ceiling, and so on), and information about the user whose ID number is shown. Once the bids have been placed, the RTB system selects thewinner, who receives the right to display an ad. Several ad placement services take part in Yandex's auctions, including Yandex services—Yandex.Direct andAWAPS.Yandex distributed infrastructure We seek to ensure the speed and reliability of our services regardless of the user's location by operating our own network of data centers in major citiesthroughout Russia and the other countries in which we operate. This network allows us to support reliable 24/7 operations, including server-basedcomputations, research and development work, and user and advertiser services. We use proprietary computer architecture to link these clusters of servers, aswell as proprietary computational software that operates across these distributed servers, including software that enables us to deploy and monitor softwareacross our systems. This allows us to use relatively inexpensive off-the-shelf servers as the foundation of our robust and effective systems for redundant,distributed data storage, retrieval and distributed calculations. We operate data centers in Moscow and other regions of Russia. We also rent space in co-location centers in Amsterdam, the Netherlands, and inAshburn, Virginia. We have received permission to operate the first phase of our new data center in Finland, while other phases are currently underconstruction at that site. We have points-of-presence in a number of cities in Russia and elsewhere. The geographic distribution of our servers decreases thecost of internet usage for our users, increases the access speed for our services and increases the stability and dependability of our service offerings. Thisstructure provides redundant fail-safe capacity such that the failure of a single facility would not cause our websites to stop functioning.Sales and Advertiser Support We have an extensive sales and support infrastructure, with sales offices in a number of cities in Russia and Ukraine, as well as Lucerne, Switzerland, andNewburyport, Massachusetts, the USA. We attract advertising customers through both online and offline sales channels. The substantial majority of our advertisers use our automated Yandex.Direct service to establish accounts, create ads, target users and launch and managetheir advertising campaigns. We provide email and telephone support for these customers. Our sales team focuses on attracting and supporting companies inRussia with the largest advertising budgets. These companies may request strategic support services, which include a dedicated accounts team, to help themset up and manage their campaigns. Our sales team specialists are able to help advertisers with tasks such as selecting relevant keywords, creating effectiveads and audience targeting, thus measuring and improving advertisers' return on investment. The Yandex ad network program follows a similar model. Most of the websites in the network submit their applications through Yandex.Direct'sautomated partner interface. Our direct sales force56 Table of Contentsfocuses on building relationships with major websites. Our support team concentrates on helping Yandex ad network partners get the most out of theirrelationship with us. We also have relationships with different advertising sales agencies placing text-based and display advertising.Marketing We engage in significant marketing efforts directed first and foremost at internet users, as well as advertising agencies, advertisers and webmasters. Our marketing efforts are focused above all on delivering the optimal user experience with every Yandex product and service. We believe that satisfiedusers are the best and most credible advocates for our services. In order to improve user satisfaction and loyalty and to continue to use our products andservices as marketing tools, we constantly experiment with and improve the design, technology and interface of these products and services. We use in-depthmarketing research methods to better understand and measure users' choices and preferences. We utilize traditional marketing surveys and online panels aswell as detailed analysis of user behavior on Yandex websites by means of our own innovative technologies and analytical tools. Each change in ourproducts or services is implemented only after extensive tests and demonstration of improvement in user experience. We believe our strength lies in thediversity of our team, where mathematicians and engineers work side by side with creative marketing staff. Although we believe that word of mouth is the best advertising strategy, we also view advertising campaigns in online and traditional media as animportant element of our efforts to promote our brand, as well as key services, such as our browser, in Russia and the other CIS countries where we are present,as well as in Turkey. We also promote our brand at various social events. Our knowledge of the national and local culture allows us to communicate ourmessage more efficiently and to promote our brand values more effectively, which we believe, in turn, results in a long-lasting increase in our brandawareness in Russia. We also organize and sponsor a wide range of informational seminars, including events for professionals, such as seminars onYandex.Direct for advertisers and on API's for web developers, as well as educational seminars for university students, as we consider them to be valuablecurrent and future partners and public opinion leaders.Educational and Start-Up Support We actively contribute to the advancement of computer science, mathematics, and information search and retrieval in Russia. Our initiatives include theYandex School of Data Analysis, which we founded in 2007 and from which we recruit developers. In April 2014, we announced the opening of the Computer Science Faculty at the Higher School of Economics to educate students in two principal areas—applied mathematics and software engineering. The faculty offers bachelor's, master's and doctorate courses, and started courses in September 2014. Webelieve it is important to invest in talent as it is the main asset of any innovative company. Our Tolstoy Summer Camp, launched in 2013, is aimed to support up-and-coming projects and original ideas in IT. It is a boot-camp for future ideas andprojects. During the two months the program participants are able to benefit from experience and expertise of the Yandex specialists who work withparticipants as mentors, as well as from international guest lecturers in digital technology, mobile, marketing and communications.57 Table of ContentsAdvertisers We served ads for 317,000 advertisers in the fourth quarter of 2014 and for more than 558,000 in the full year 2014, compared with 277,000 in the fourthquarter of 2013 and more than 460,000 in the full year 2013. Our advertisers include individuals and small, medium and large businesses throughout thecountries in which we operate, as well as large multinationals. Small and medium-size enterprises purchase the bulk of our text-based advertising. Noparticular advertiser accounted for more than 1.5% of our total revenues in 2012, 2013 or 2014.Employees and Workplace Culture We place a high value on technological innovation and compete aggressively for talent. We strive to hire the best computer scientists and engineers, aswell as talented sales, marketing, financial and administrative staff. We seek to create a dynamic, fulfilling work environment with the best features of a "start-up" atmosphere, encouraging equal participation, creativity, the exchange of ideas and teamwork. Our total headcount increased from 3,761 at December 31, 2012, to 4,902 at December 31, 2013 and 5,616 at December 31, 2014. As of December 31,2014, we had 3,329 employees in product development, 1,826 in sales, general and administration, and 461 in cost of sales.Intellectual Property We rely principally on a combination of trademark, copyright, related rights, patent and trade secret laws in Russia and other jurisdictions as well asconfidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We enter into confidentiality and patentassignment agreements with our employees and consultants and confidentiality agreements with other third parties, and we rigorously control access to ourproprietary technology. Our patent department is responsible for developing and implementing our group-wide IP protection strategy in selected jurisdictions. We have filedmore than 150 patent applications to date, some of which have already resulted in issued patents. We also have internal procedures for invention disclosures,patent filings, patent acquisitions, freedom-to-operate analyses and patentability searches. Yandex is a registered well-known trademark in Russia for certain services (classes 35 and 38 under the International Classification of Goods andServices) among relevant consumers on the basis of intensive use. Under Russian law, the protection granted to well-known trademarks is extended to non-homogenous goods and services if customers associate specific use of the designation by third parties with the rights holder and the rights holder's legitimateinterests are infringed. Yandex is also a registered trademark in Ukraine, the United States, the European Union and other countries under the MadridAgreement and Protocol. We have other registered trademarks in Russia. We continue to file applications to register new trademarks and widen the countrycoverage of our existing trademarks. Most of the software used by our services or distributed by Yandex to our users is either developed by our employees orby independent contractors who transfer all rights to Yandex. We enter into written license and use arrangements with providers of a significant portion of the content we offer. Our agreements with most of the newscontent providers in Russia are on "content-for-traffic" terms, pursuant to which we obtain access to news content for free in consideration of the user trafficthat accesses the content providers' websites through our search engine. We license or purchase other additional content. We do not knowingly includecontent on our websites that we do not have the legal right to include. We do not own the content generated or posted by users on our websites. As with all websites that host user-generated content, we are potentially liablefor any intellectual property infringement committed by the creator of that content. If we receive a complaint from a party that user-generated58 Table of Contentscontent on our websites infringes that party's copyright or related rights, we examine the content in question. If we are unable to confirm the violationindependently, we request a formal letter of complaint from the notifying party. We then contact the party that has posted the content, and give that persontwo options: either remove the content, or allow us to provide his or her personal details to the notifying party so that that party may defend its rights. In theevent of any court decision in the matter, we comply with the decision. If the potentially offending party does not respond, we remove the content.Competition We operate in a market characterized by rapid commercial and technological change, and we face significant competition in many aspects of ourbusiness. We currently operate principally in Russia, Ukraine, Belarus, Kazakhstan and Turkey. We face competition from global players such as Google andlocal players such as Mail.ru, both of which offer proprietary search and other services. Globally, we consider Google to be our primary competitor. Google launched its Russian-language search engine, google.ru, in 2001 and established itsfirst office in Russia in 2006. In addition to its search solutions, Google offers online advertising and information and other search services similar to ours,including services similar to Yandex.Direct and Yandex.Maps. We expect that Google will continue to use its brand recognition and financial andengineering resources to compete with us. In terms of domestic players, our principal competitor is Mail.ru. In early 2010, Mail.ru launched its own search platform, and in July 2013 announcedthat it fully switched to its proprietary search technology in organic search results. We have entered into a partnership with Mail.ru pursuant to which Mail.ruuses the Yandex.Direct advertising system to power paid search results on its properties. Mail.ru offers many communication services, including Russia's mostpopular webmail social networking and messenger services. The following table presents a comparison of Russian search market share, according to Liveinternet.ru, based on search traffic generated: We also face competition from the Russian and international websites of Microsoft and Yahoo!, as well as other established companies and start-ups thatare developing search and online advertising technologies. In certain vertical areas, we compete with niche services, including e-commerce, video search,online news aggregators and dictionaries, real estate and automobile services, and specialized search apps for mobile devices. We also compete with onlineadvertising networks, such as Google and Begun, which direct text-based advertising on a number of popular Russian websites. We anticipate that social networking sites, such as Facebook, Twitter, and Mail.ru's Vkontakte, Odnoklassniki and My World services, may becomesignificant competitors for online ad budgets. These sites derive a growing portion of their revenues from online advertising, and are experimenting withinnovative ways of monetizing user traffic. In light of their very large audiences and the significant amount of proprietary information they can access andanalyze regarding their users' needs, interests and habits, we believe that they may be well positioned to offer highly targeted advertising which could createenhanced competition for us. The popularity of such sites may also reflect a growing shift in the way in which people find information, get answers and buyproducts, which may result in increased competition for users.59 2012 2013 2014 March2015 Yandex 60.2% 61.8% 60.9% 58.0%Google 26.2% 26.2% 29.3% 33.6%Mail.ru 8.5% 8.6% 7.3% 6.4% Table of Contents We also face competition from other search and service providers in establishing relationships with device manufacturers, such as mobile and tabletcomputer makers, and access providers, such as internet service providers. Such companies have a significant degree of control over the distribution ofproducts and services, including by offering or establishing exclusive arrangements for "default" search features or other services and bundling them withtheir offerings. Our users typically have direct relationships with these companies, and may be influenced by economic or other factors in deciding whichsearch or other services to use. In February 2015, we made a formal request to the Russian Federal Anti-Monopoly Service to open an investigation intowhether Google is using its dominant position in mobile operating systems to promote its search and services through its requirement that devicemanufacturers bundle Google's Android operating system with Google applications and services. We compete to attract and retain relationships with users, advertisers, Yandex ad network partners and business partners in different ways:•Users. Most of the services we offer to users are free, so we do not compete on price. Instead, we compete on the basis of the relevance,usefulness and accessibility of our search results and the features and ease of use of our services. •Advertisers. We compete for advertisers principally on the basis of the return on investment they can achieve and the breadth of audience weoffer, as well as the features and ease of use of our advertising solutions and the quality of our customer service. •Yandex ad network partners. We compete to attract and retain network partners based on the size and quality of our advertiser base, ourability to help partners generate revenues from advertising through our targeted ad-serving technology, and the commercial terms we offer ourpartners. •Business partners. We compete for relationships with content providers, distribution partners, online merchants and other business partners ona variety of bases, including the user traffic we are able to direct to them and the commercial terms we offer.Facilities Our principal operating subsidiary currently leases a total of approximately 48,000 square meters in a single location in central Moscow that serves asour group's headquarters. We or our operating subsidiaries also lease or own office space in a number of cities in Russia and Ukraine. We also lease offices inSan Jose, California and Newburyport, Massachusetts; Istanbul, Turkey; Lucerne, Switzerland; Minsk, Belarus; Berlin, Germany; and Schiphol, TheNetherlands. We operate data centers in Moscow and other regions of Russia. We also rent space in colocation centers in Amsterdam, the Netherlands, and inAshburn, Virginia. We have received permission to operate the first phase of our new data center in Finland, while other phases are currently underconstruction at that site. We continue to evaluate the need for and location of our data centers. We have points-of-presence in a number of cities in Russia andelsewhere. We believe that all of our leases and co-location agreements are on competitive market terms. Taking into account the projected demand for ourservices, we continuously evaluate the capacity and locations of our data centers to determine the most cost effective manner to deliver reliable service to ourusers.Government Regulation We are subject to an extensive and constantly developing legal framework resulting in a number of laws and regulations in Russia and other jurisdictionsapplicable to the internet business. As explained in more detail below, there are also a significant number of additional laws and regulations currently beingdebated and considered for adoption in Russia and other countries where we operate which, in the event of adoption, might require us to make substantialadjustments to our business practices.60 Table of ContentsAdvertising Regulation The principal Russian law governing advertising, including online advertising, is the Federal Law No. 38-FZ "On Advertising," dated March 13, 2006 (asamended) (the "Russian Advertising Law"). The Russian Advertising Law renders impermissible advertisements for certain regulated products and serviceswithout the required certification, licensing or approval. Advertisements for products such as tobacco, pharmaceuticals and medical equipment, foodsupplements and infant food, financial instruments or securities and financial services as well as incentive sweepstakes and advertisements aimed at minorsand some other products and services must comply with specific requirements and must in certain cases be accompanied by certain required disclaimers. Theamendments to the Russian Advertising Law which came into force in July 2012 outlawed the advertising of alcohol on the internet as well as in periodicals,among other platforms. In addition, the distribution of advertisements over the internet (for example, by email) may require the prior express consent ofrecipients. In some cases, violation of the Russian Advertising Law can lead to civil action by third parties who suffered damages, or administrative penaltiesimposed by the Federal Antimonopoly Service of Russia (the "FAS"). In early 2014, new regulations were also adopted to limit or in certain cases to prohibitthe advertising of medical services; these restrictions were loosened to some degree in June 2014. Further amendments to legislation regulating advertisingmay impact our ability to provide some of our services or limit the type of advertising we may offer. We seek to comply with all advertising laws and regulations. At the same time, the application of the advertising laws, in particular in relation toproducts or services requiring certification, licensing or approval, can be ambiguous and inconsistent. The application of these laws in an unanticipatedmanner, or the failure of our compliance efforts, may expose us to substantial liability as distributors of advertising and may restrict our ability to providesome of our services. Other laws or interpretations of laws, including those of foreign jurisdictions, may also restrict advertising and negatively impact our business. Forexample, some French courts have interpreted French trademark laws in ways that would limit the ability of competitors to advertise in connection withgeneric keywords. Adoption of similar interpretations by Russian or other national courts may adversely affect our business. In addition, Russian law doesnot specifically regulate behavioral targeting in relation to advertising, which is a standard tool widely used in the online business. Any future interpretationof Russian law affecting the regulation of behavioral targeting could have a negative impact on our business. Furthermore, there is no clarity regarding the approach Russian law and court practice will take with respect to the use of third parties' trademarks inkeywords for the purposes of search and contextual advertising. There is a practice of lower courts recognizing that the use of trademarks in keywords shouldnot be considered a breach of exclusive trademark rights and that the operator of the advertising platform allowing the use of keywords for ad targetingshould not be held liable for such use. However, inconsistent decisions among different courts and in different regions are not uncommon in Russia.Therefore, our operations might be adversely affected depending upon the approach the Russian courts take in this respect.Intellectual Property Regulation Part IV of the Civil Code of Russia (as amended), which came into force in 2008, is the major body of Russian law providing the legal framework forintellectual property regulation, including with respect to the acquisition, maintenance, protection and enforcement of exclusive rights. Additionally, Russiaacceded to the World Trade Organization in the summer of 2012 and also become a party to the 1994 WTO TRIPS Agreement governing the principal aspectsof the intellectual property protection afforded to the parties thereto.61 Table of Contents In principle, the acquisition, protection and enforcement of intellectual property rights in Russia are addressed in line with international standards. Inparticular, literary, artistic and scientific works are subject to copyright protection without any registration and enjoy legal protection simply by virtue ofbeing created in an objective form perceivable by third parties. Although the registration of software and databases with the Federal Service for IntellectualProperty ("Rospatent") is possible, the procedure is voluntary and is not commonly performed. We take the approach that registration with Rospatent of thesoftware and databases we develop is excessive since we believe that we are adequately protected by the existing legal framework as the holder of allcopyrights and related rights to our software and databases. Mandatory registration with Rospatent is required for "hard IP" such as trademarks and patents (available in Russia for inventions, utility models andindustrial designs) in order for the rights holder to acquire exclusive rights. Trademarks registered abroad under the Madrid Agreement Concerning theInternational Registration of Trademarks dated April 14, 1891 and/or the Protocol to the Agreement, dated June 27, 1989, have the same legal protection inRussia as locally registered trademarks. Our main brand and branding materials for our key services have trademark protection in the jurisdictions where weoperate, either through national trademarks or international registrations; however, until recently we did not register figurative logos that we use on ourwebsites on the basis that they are changed and upgraded from time to time and we also hold copyrights in these logos. We are currently intensifying ourefforts to obtain broader trademark protection. Under Russian law, we are entitled to receive exclusive rights to trade secrets (know how) only if we have complied with a legal requirement to introducean internal commercial secrecy regime, which may be burdensome and formalistic to implement. As we rely extensively in our operations on the protectionafforded to trade secrets, we implemented a set of measures required by the Federal Law No. 98-FZ of July 29, 2004 "On Commercial Secrecy" in order toprotect these trade secrets (know how). However, there is a risk that our measures will be deemed insufficient and, as a result, we will fail to acquire rights tothese trade secrets under Russian law. One of the known problems and risks in Russian business practice relates to acquiring exclusive rights to works for hire and patentable results fromemployees as well as third-party contractors. By operation of Russian law, the exclusive rights to works for hire and patentable results are assigned to theemployer if the intellectual property is created by an employee during the course of his ordinary job duties (or, in the case of patents, pursuant to a specificrequest by the employer). A similar rule is applicable in the context of agreements specifically providing for the creation of software. Uncertainties anddisputes might arise with respect to whether exclusive rights have actually been transferred to the employer or contractor on the basis of an employment orother agreement if intellectual property has been created outside the scope of the employee or contractor's employment (in the case of works for hire), or alegal entity has failed to properly document its relations with its own employees and subcontractors and, as a result, is unable to transfer any rights to itscustomer. Russian courts of common jurisdiction (as opposed to arbitrazh commercial state courts) may be more inclined to follow an overly formalisticapproach and may take a pro-employee position in the event of uncertainty in a dispute of this nature. Nonetheless, under Russian law, subject to the risks outlined above, we are deemed to have acquired copyrights and rights to file patent applicationswith respect to works for hire and patentable results created by our employees during the course of their employment with us and within the scope of their jobduties, and have the exclusive rights to their further use and disposal subject to compliance with the requirements of the Civil Code of Russia.62 Table of ContentsLiability of Online Service Providers Laws relating to the liability of online service providers for the activities of their users and other third parties are still being developed in Russia andcertain other countries in which we operate. Before August 2013, there were certain judicial precedents outlining liability of hosting service providers andwebsite owners in Russia. In August 2013, new amendments to Russian laws, including to the Russian Civil Code, came into effect aimed at the enhancementof intellectual property rights enforcement on the internet. The amendments of the Part IV of the Civil Code of the Russian Federation introduced provisions aimed at establishing a framework for limitation ofliability of online service providers. In particular, the law currently contains a rule that service providers transmitting information in communicationnetworks will not be held liable in the event the provider has neither initiated transmission nor selected recipients and performs no modification of thetransmitted material. A hosting provider, on the other hand, may be exempt from liability in the event it possesses no actual or constructive knowledge of theinfringement and timely undertakes necessary and sufficient measures to cease infringement following receipt of written notification identifying the rightsholder and the location of the allegedly infringing material. Although adoption of these provisions may be a step forward in terms of clarifying thelimitations of online service provider liability, substantial ambiguity still remains particularly because these provisions contain no guidance as to whatwould constitute "necessary and sufficient measures" in this regard (for example, whether they include a requirement to monitor re-uploading of the samework by the same or other users) and provide no clarity on the limitation of liability with respect to other types of online service providers (such as thoseperforming caching or providing information location tools). In light of this, our exposure to liability will significantly depend on interpretation of these newprovisions by the courts and officials. Also, in October 2014, new amendments to the Russian Civil Code became effective that introduced strict liability for infringement of intellectualproperty rights if such infringement is committed in connection with business activities. It is unclear how these amendments will apply to online serviceproviders. Implementation of this legislation, as well as adoption of similar regulations may impose new requirements on us and our operations and lead to materiallegal liability, which can be difficult to foresee or limit. See "Risk Factors—We may be held liable for information or content displayed on, retrieved by orlinked to our websites, or distributed by our users, or we may be required to block certain content, which could harm our reputation and business."Regulation of Electronic Payments Federal Law No.161-FZ "On the National Payment System," dated June 26, 2011, entered into force on September 29, 2011 and provides a legaldefinition of the term "electronic money" (or "digital money"). Under these regulations, payments with digital money fall into the sphere of banking activitiesand such payments are regarded as a special transaction entered into without the need to open an account. Such transactions, however, have to be performedby a credit organization supervised by the Central Bank of Russia. To comply with this law, the Yandex.Money joint venture established a new, non-bankingcredit organization subsidiary, which obtained the license required from the Central Bank of Russia for the performance of non-banking credit operations andassumed operation of the Yandex.Money business in September 2012. Most of the contractual obligations of PS Yandex.Money LLC have been transferredto its non-banking credit organization subsidiary. However, if not all contractual obligations were successfully transferred from PS Yandex.Money, there is arisk that that entity may be found not to be in compliance with all applicable legal requirements. As PS Yandex.Money LLC is the holder of a participation interest constituting more than 20% of the charter capital of a non-banking creditorganization, the preliminary consent of the Central Bank of63 Table of ContentsRussia is required for any establishment of direct or indirect control in respect of PS Yandex.Money LLC. Accordingly, any change of control in respect ofYandex N.V. may be considered a change of indirect control in respect of PS Yandex.Money, and there is a risk that the Central Bank of Russia may not grantthe required consent for the indirect change of control and, consequently, prohibit or restrict the transaction giving rise to such indirect change of control. In July 2013, we formed our Yandex.Money joint venture with Sberbank, upon the completion of Sberbank's acquisition from us of a 75% (less oneruble) interest in PS Yandex.Money LLC. Following this transaction, however, there is a risk that a change of control in respect of Yandex N.V. would stillrequire preliminary consent of the Central Bank of Russia, as Yandex N.V. could be considered to indirectly hold more than 20% of the voting power of thenon-banking credit organization.Mass Media Regulation Dissemination of news and similar information to a wide audience in Russia is regulated by the Russian Federation Law No. 2124-1 "On Mass Media",dated December 27, 1991 (as amended) (the "Mass Media Law"). This law requires certain parties that disseminate news and similar mass communicationsand information to be registered with the appropriate Russian governmental body, Roscomnadzor, and to comply with restrictions regarding the content ofthe information they distribute. In November 2011 an amendment to the Mass Media Law came into force to permit electronic network publications(websites) to register as mass media under the procedures established by the law. As registration under this amendment is voluntary, we elected not to followthe registration procedures established by the Mass Media Law for our online properties. See "Risk Factors—The legal framework governing internet servicesand e commerce in Russia and the other countries in which we operate is in the process of development, and we may be required to have additional licenses,permits or registrations, or to take additional actions in order to conduct our business, which may be costly or may limit our flexibility to run our business." In 2014, the Russian government introduced legislation regulating popular bloggers. The legislation is drafted in general terms and can potentiallyapply to any owner of a website or webpage which contains publicly available information and is visited by more than 3,000 internet users daily, whethersuch site is owned and/or operated by an individual or a legal entity. Popular bloggers have to register with the Russian authorities and bear responsibilitiesin respect of the content available on their websites or webpages which are substantially similar to the obligations of mass media in Russia (including arequirement to ensure the accuracy of the information made available). Since the scope of this legislation is uncertain, it is unclear whether the newlegislation applies to any of the companies of our group. Moreover, amendments to the Mass Media Law adopted in October 2014 will limit non-Russian ownership and control, direct or indirect, of Russianmass media to no more than 20%, starting in 2016. Accordingly, if our core business were to be required to register as a mass media, it would have a materialimpact on the ownership structure of our business and could materially adversely affect the value of our Class A shares. See also "Risk Factors—If the Russiangovernment were to impose limitations on foreign ownership of internet businesses in Russia, it could materially adversely affect our group and the value ofour Class A shares."Encryption Activity License The licensing of encryption activity is governed by Federal Law No. 99-FZ "On Licensing of Specific Types of Activities", dated May 4, 2011 (asamended). Under the law, a variety of activities related encryption require a special permit (license) granted by the Federal Security Service (the "FSS")subject to the applicant's continued compliance with a number of licensing requirements, including the requirement to use only certified encryption meansand equipment and to ensure timely extension of such certification when its terms expires.64 Table of Contents Our Yandex.Money joint venture with Sberbank, which uses encryption algorithms for the protection of transfers performed by its customers, receivedfour licenses from the FSS in October 2010 in relation to its encryption activities. These licenses are valid until October 2015 and were obtained by PSYandex.Money LLC on the basis of an earlier legal framework. The requirements for the grant and maintenance of licenses as set out in these earlier laws aswell as current laws are very broad and unclear, leaving the regulator with much discretion in applying and enforcing these laws. As discussed above, following the introduction of electronic payments regulation in Russia requiring participants of the market to obtain a license fromthe Central Bank of Russia, Yandex.Money has been required to establish a non-banking credit organization subsidiary for these purposes. As the subsidiaryobtained no encryption licenses and has no intention of applying for such licenses, PS Yandex.Money LLC continues to maintain encryption licenses andnow provides encryption and information protection services to its subsidiary.Strategic Companies Law In accordance with the Strategic Companies Law, there are restrictions with respect to the acquisition of voting shares or participation interests andestablishment of control by foreign legal entities, individuals as well as states, international organizations and entities controlled by them, with respect tobusiness entities with strategic importance. The internet and online advertising are not currently industries specifically covered by the Strategic CompaniesLaw, but there have previously been draft amendments under consideration by the Russian State Duma, which, if adopted, would include certain internetcompanies that have large audiences within the scope of this law. In addition, entities holding licenses to use encryption technologies are covered by thislaw. As discussed above, Yandex.Money joint venture holds encryption licenses and is thus subject to the Strategic Companies Law. Under the provisions of the Strategic Companies Law, the direct or indirect acquisition in excess of 25% of the voting power of a strategically importantentity by a foreign state, foreign governmental organization, international organization or entity controlled by a foreign government or internationalorganization, or the acquisition of shares representing in excess of 50% of the voting power of such a company by any other foreign investor or any of itsaffiliated companies, requires the prior approval of a Russian Government Committee chaired by the Prime Minister. In addition, foreign investors or theirgroup of companies that are controlled by a foreign state or a foreign government or international organization are prohibited from owning sharesrepresenting more than 50% of voting power of a strategically important company, including jointly with other unrelated foreign investors controlled by aforeign state or international organization.Amendments into the Strategic Companies Law effective as of December 2014 have, among other things,specifically stated that transactions on stock markets are subject to restrictions of the aforesaid law. Moreover, the acquisition of 5% or more of the shares of a strategically important company triggers a requirement to submit notification to the FAS.Failure to obtain the required governmental approval prior to an acquisition would render the acquisition invalid. The Strategic Companies Law also appliesto entirely foreign transactions entered into by foreign entities abroad (in other words, the law applies on the basis of the effects of such transactions inRussia). In the event invalidation of the transaction is not possible in the specific circumstances the court is entitled to deprive the foreign investor of itsvoting rights with respect to the acquired shares or participation interest. Because our parent company held its interest in PS Yandex.Money LLC at the time that Yandex.Money became a strategically important company, webelieve that our ownership of Yandex.Money was in compliance with the Strategic Companies Law. Additionally, in July 2013, we disposed 75 percent (less1 ruble) of our participation interest in Yandex.Money in a sale to Sberbank.65 Table of ContentsUpon completion of the transaction, we entered into a joint venture agreement with Sberbank in respect of the future operation of this business. Upon the completion of the Yandex.Money participation interest acquisition by Sberbank Yandex N.V. in July 2013, which reduced our participation to25% plus 1 ruble of charter capital, non-Russian persons may be permitted to acquire shares in Yandex N.V. without previously applicable limitations since itwill no longer control Yandex.Money. Nonetheless, it is likely that the necessity to obtain preliminary approval from the Russian Government Committeewould be still applicable to a non-Russian state, governmental organization, international organization or entity controlled by a non-Russian government orinternational organization that would seek to acquire shares of Yandex N.V. or enter into an agreement that would establish direct or indirect control overYandex N.V. (in other words, such an investor would be considered to hold an indirect blocking stake of Yandex.Money under the Strategic CompaniesLaw). There is also a risk that some of the rights granted to Yandex N.V. under the joint venture agreement with Sberbank could be interpreted by Russianauthorities as establishing control by Yandex N.V. over Yandex.Money, which would require the Governmental Committee's preliminary consent for abroader number of transactions as specified above, including by private non-Russian persons. In December 2011, a set of amendments to the Strategic Companies Law came into force, which liberalized the regime of investments in strategiccompanies by narrowing the list of strategic industries and types of activities and providing an exemption for certain categories of international financialinstitutions established on the basis of the international treaty to which Russia is a party (the list is to be approved by the Russian Government), as well asstrategic entities ultimately controlled by the Russian Federation or Russian citizens who are simultaneously Russian tax residents, provided that they do nothave multiple citizenship. In particular, according to the above amendments, the following activities have been removed from the list of strategically important activities:distribution and maintenance of encryption equipment and encryption services so long as these activities are performed by banks which have no Russianstate-owned shares. These amendments were enacted for the benefit of, and refer only to, banks without providing a definition of what is to be considered abank for these purposes. In the absence of a definition, this provision is likely to be interpreted narrowly as not applying to non-banking credit organizations,which are likely still considered strategically important. Amendments effective as of December 2014 further expanded the scope of the Strategic Companies Law to apply to acquisition of fixed assets ofstrategically important company equal to or exceeding 25% of its book value as per the latest financial statements.Privacy and Personal Data Protection Regulation We are subject to Russian and foreign laws regarding privacy and the protection of our users' personal data. We publish on our websites our privacypolicies and practices concerning the use, processing, storage and disclosure of user data. Any failure by us to comply with our privacy policies as well asRussian or other applicable laws and regulations relating to privacy and the protection of user data may result in proceedings against us by governmentalauthorities, individuals or other third parties, which may adversely impact our business. In addition, the interpretation of data protection laws, and theirapplication to internet operations, is often unclear and is in a constant state of development and although we believe that we comply with all currentrequirements, these laws could in the future be interpreted and applied in a manner that is inconsistent with current practice. For instance, in May 2014 theCourt of Justice of the European Union established that an operator of a search engine can be obligated to remove from the list of search results links to web-pages containing inaccurate or outdated information related to an individual.66 Table of Contents As another example, Russian data protection laws provide that an individual must consent to the production of her/his personal data in a free manner, ather/his own discretion and interest. Such consent must be concrete, informed and conscious, and may be provided in any form evidencing the fact thatconsent has been provided, unless otherwise established by federal law, which requires that it be made in writing, signed by digital electronic signature orevidenced in a similar manner prescribed by laws and regulations. We, like our peers, seek this consent from our users by asking them to click on a button or select a check-box in appropriate circumstances prior tocommencement of the account registration process indicating the user's consent to our collection, use, storage and processing of personal data. Furthermore,most of our services do not require the creation of an account prior to their use and we collect only limited information in these circumstances. In particular,we perform placement of cookies and use other wide-spread technologies that assist us in improving user experience of our products and services andultimately benefit both our users and advertisers to the extent that we use a certain part of this collected information for behavioral targeting of advertising.No clear legislative guidelines have been provided addressing whether our practices are compliant with the requirements of the data protection legislation inRussia and abroad. There is a risk that such laws may be interpreted and applied in a manner that is not consistent with our current data protection practices.Complying with various regulations in this area may cause us to incur additional costs or to change our business practices. Further, any failure by us toprotect our users' privacy and data may result in a decrease of user confidence in our services, and may ultimately result in a loss of users, which wouldadversely affect our business. In 2014, the Russian government adopted legislation to regulate the "organizers of information distribution". Organizers of information distribution mustretain a broad range of data relating to and generated by the users (including the facts of receipt, transfer, delivery and processing of information as well asinformation about the users) for a period of six months and provide such data to security and investigation authorities at their request. If an organizer ofinformation distribution fails to comply with the above requirements, the Russian authorities can prescribe the blocking of access to the services of suchorganizer of information distribution. Recently adopted amendments to the personal data law in Russia will also require that companies store all personal data of Russian users only indatabases located inside Russia, starting September 1, 2015. Although our principal data centres are currently located in Russia, this law could limit ourflexibility in managing our operations globally.Licenses for the Provision of Communication Services Pursuant to the Federal Law No. 126-FZ "On Communication", dated July 7, 2003 (as amended), entities that provide certain telecommunication servicesfor a fee are required to obtain a "telematics" licenses from the Roscomnadzor. We generally do not charge a fee for the online services we provide to our usersand therefore, we believe that we are not required to hold a telematics license. We do, however, generate revenue from ads directed to our users. As a result, itis possible that a Russian court or government agency may construe our advertising revenue as a fee and determine that we are required to hold a telematicslicense, which would require us to apply for and comply with the terms of any such license. Additionally, as we might further develop certain user services that would be provided for a fee this might trigger the risk that such operations could beconsidered as violating the licensing requirements described above.67 Table of ContentsProtection of Minors from Harmful Information The Federal Law No. 436-FZ "On Protection of Minors from the Information Harmful to their Health and Development", dated December 29, 2010 (the"Minors Protection Law"), which came into effect as of September 1, 2012, restricts circulation of certain identified categories of publicly available anddistributed information that may be harmful for minors. In particular, there is a requirement to take administrative and technical measures to preventdissemination of restricted information. In addition, the circulation of information products designated for specific age categories of minors must beaccompanied by a relevant mark identifying the age restriction category of information. Advertising of information products must also be accompanied by acategory identification mark. Prior to the Minors Protection Law becoming effective, significant amendments were approved. In particular, the requirement for age categoryidentification for information made available on the internet was abolished (except for the websites registered as mass media) and is now voluntary. Furthermore, administrators of websites registered as mass media have been expressly relieved from the responsibility for age category identification withrespect to commentaries and messages posted by users of the websites at their discretion.Blacklist of Websites Containing Illegal Information The amendments introduced to the Minors Protection Law referenced above have been accompanied by a set of rules included in Federal Law No. 149-FZ "On Information, Information Technologies and Protection of Information", dated July 27, 2006 (as amended), establishing a system for the blocking ofwebsites on the internet that make available specific categories of illegal information related to child pornography, encouraging suicide or drug use as well asother restricted information. The uniform register of domain names, website page locators and network addresses enabling identification of websites on theinternet commenced operation as of November 1, 2012. Roscomnadzor is responsible for maintaining and operating the register. This register is intended to operate as follows: after the inclusion of a specific website or webpage in the registry at the decision of the relevant stateauthority (in the event of child pornography, information related to suicides and drug use) or on the basis of a court ruling (any other restricted information),Roscomnadzor notifies the website hosting provider within 24 hours, which must, in turn, notify within 24 hours the administrator of the website in question.If following notification the website administrator fails to take down the information, the hosting provider must restrict the access to such information.Provided that the information is still accessible within 3 days after notice is given to the hosting provider, Roscomnadzor will include the IP address of thewebsite in the registry, which must be blocked by all Russian internet service providers and telecommunication service operators. Nevertheless, it is possibleto request exclusion of the IP address from the registry in the event the information in question has been taken down by the website administrator or hostingprovider. The legal framework related to this blacklist of websites is controversial, and the procedures established by this law have been heavily criticized by thegeneral public, industry players and legal scholars, and may well be revised. Roscomnadzor issued a clarification on November 30, 2012 specifying thatsearch engines, news aggregators and cached information used in the course of their operation will not be included in the registry because they fall outsidethe scope of the law. At the same time, the regulator's approach may change and our operations could face intervention by inappropriate application of thewebsites blacklist legislation. Further legislation is currently in place in Russia and utilized by authorities that allows blocking of websites that contain extremist information(including containing calls for mass rioting, extremist activity and participation in mass assemblies conducted in violation of established procedure) at the68 Table of Contentsrequest of certain governmental authorities without prior notification. Only a subsequent post-blocking notification to relevant website owner or hostingprovider is required. The categories of illegal information to which access can be restricted may be interpreted broadly or be expanded. For example, in July 2014 Russianauthorities ordered that access to several websites be blocked on the basis of the violation of personal data regulations. The most recent amendment to thislegislation, which comes into force on May 1, 2015, has introduced the possibility to require the permanent blocking of websites for violation of copyrightand related rights. There is no clarity as to how this measure will be applied in practice. Based on these considerations and the uncertainties in the applicationof these laws, we may be subject to arbitrary blocking measures, injunctions or court decisions that may require us to block or remove content and mayadversely affect our services and operations. See "Risk Factors—We may be held liable for information or content displayed on, retrieved by or linked to ourwebsites, or distributed by our users, or we may be required to block certain content, which could harm our reputation and business."Securities Regulation The Federal Law No. 39-FZ "On the Securities Market", dated April 22, 1996 (as amended) (the "Securities Law"), contains the principal regulationsgoverning the issuance and circulation of securities and certain financial instruments in Russia and outside Russia (when issued by a Russian issuer), and setsforth the rules for the placement and circulation of foreign securities and financial instruments in Russia. The Securities Law requires Russian companies thatintend to place or initiate trading of their securities abroad to obtain a preliminary approval from the Central Bank. Our Class A ordinary shares are currently listed on the NASDAQ Global Select Market and in June 2014 were admitted to trading on Moscow Exchange,therefore we are now required to comply with specific Russian regulation concerning information disclosure, insider trading and certain other requirements asmay be applied to foreign issuers in Russia.Antimonopoly Regulation The Federal Law No. 135-FZ "On Protection of Competition", dated of July 26, 2006 (as amended), grants to the FAS as the antimonopoly regulator widepowers and authorities to maintain competition in the market, including approval or monitoring of mergers and acquisitions, establishment of rules ofconduct for market players occupying dominant positions, prosecution of any wrongful abuse of a dominant position, and the prevention of cartels and otheranti-competitive agreements or practices. The regulator may impose significant administrative fines (up to 15% of the annual revenue derived in the marketwhere the violation occurred) on market players that abuse their dominant position or otherwise restrict competition, and is entitled to challenge contracts,agreements or transactions that are performed in violation of the antimonopoly regulation. We have a substantial market share in the online advertisingmarket, however, we are not recognized by the regulator as occupying a dominant position in any market. However, we understand that the regulator fromtime to time focuses on internet services and could in the future recognize online advertising as a separate market, and could identify dominant players andimpose conduct limitations and other restrictions. In addition, in February 2015, we made a formal request to the Russian Federal Antimonopoly Service(FAS) to open an investigation into whether Google is using its dominant position to promote its search and other services bundled into a single packageimposed for pre-installation by device manufacturers, as well as employing exclusive dealing and other restrictive practices to increase its search marketshare.69 Table of ContentsTaxation Regulation Taxation of legal entities and individuals in Russia is regulated primarily by the Tax Code of the Russian Federation. The scope and application of theTax Code is elaborated by numerous regulations and clarifications from the Ministry of Finance of Russia and by the Federal Tax Service, which enforces thetax laws. Russian tax law and procedures are still not sufficiently developed and local divisions of the Federal Tax Service have considerable autonomy intax law interpretation and often interpret tax rules inconsistently. Also, there is extensive court practice on the construction of the Code's provisions, whichcan sometimes be unpredictable or even contradictory. Both the substantive provisions of the Russian tax law and the interpretation and application of thoseprovisions by the Russian tax authorities and by Russian courts may be subject to rapid and unpredictable change. See "Risk Factors—Changes in theRussian tax system or unpredictable or unforeseen application of existing rules may materially adversely affect our business, financial condition and resultsof operations."Applicability of Other Regulations Because our services are accessible to Russian-language speakers worldwide and are becoming increasingly available to other users globally, certainforeign jurisdictions, including those in which we have not established a local office, employees or infrastructure, may require us to comply with their locallaws. Item 4A. Unresolved Staff Comments. None. Item 5. Operating and Financial Review and Prospects. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the "SelectedConsolidated Financial Information" section of this Annual Report and our consolidated financial statements and related notes appearing elsewhere inthis Annual Report. In addition to historical information, this discussion contains forward-looking statements based on our current expectations thatinvolve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a resultof various factors, including those set forth in the "Risk Factors" and "Forward-Looking Statements" sections and elsewhere in this Annual Report.Overview We are one of the largest European internet companies and the leading search provider in Russia. Our principal constituencies are:•Users. We provide our users with advanced search capabilities and an extensive range of online services that enable them to find relevant,objective information quickly and easily, as well as communicate, connect and shop over the internet. •Advertisers. Our online advertising platform allows advertisers to reach a large audience of users in their markets and deliver cost-effectivetext-based and display advertising. With Yandex.Direct, our auction-based advertising platform, advertisers can promote their products andservices through relevant ads targeted to a particular user query, the content of a website or webpage being viewed, or user behavior orcharacteristics. Our Yandex.Market service allows merchants to advertise their goods and services either using a traditional CPC advertisingmodel or using a CPA model that charges advertisers only when it delivers a paying customer.70 Table of Contents•Yandex ad network partners. We have relationships with a large number of third-party websites, which we refer to as the Yandex ad network.In addition to serving ads on our own websites, we also serve ads on our network partners' websites and share the fees generated by these adswith our partners, providing an important revenue stream for them. Our yandex.ru website first began generating revenue in 1998. We became profitable in 2003 and have been profitable every year since then. Advertising revenues accounted for 97.7%, 98.3% and 98.8% of our total revenues in 2012, 2013 and 2014, respectively. Our advertising revenuesconsist of fees charged to advertisers for serving text-based and display ads on our websites and those of our partners in the Yandex ad network. Most of ourrevenues are generated from text-based advertising, with a smaller portion generated from display advertising. We place the significant majority of our text-based ads through Yandex.Direct and the remainder through Yandex.Market, our e-commerce gateway service. We generally sell our text-based ads on aprepaid basis. Our Yandex.Direct advertisers pay us on a CPC basis, which means that we recognize revenue only when a user clicks on one of our advertisers'ads. Our display advertising is generally sold on a cost-per-thousand (CPM) impressions basis. An "impression" is a single instance of sending an ad fordisplay on a web browser or other connected internet application. For these ads, we recognize as revenue the fees charged to advertisers when their ads aredisplayed. Our Yandex.Market service is priced on a CPC basis, like Yandex.Direct, and also offers cost-per-action, or CPA advertising, introduced inNovember 2013, which recognizes revenue from these ads only when the desired action has occurred. We recognize our advertising revenues net of value added tax (currently 18.0% in Russia), sales commissions and customer credits. Although the majorpart of our revenues is generated by direct sales to our advertisers, a significant portion of our advertising sales are sold through media agencies. Werecognize revenues from those advertising sales net of the commissions paid to these agencies. We benefit from a large and diverse base of advertisers. We had more than 460,000 advertisers in 2013 and more than 550,000 in 2014. Our advertisersinclude individuals and small, medium and large enterprises across Russia and the other countries in which we operate, as well as large multinationalcorporations. No particular advertiser accounted for more than 1.5% of our total revenues in 2012, 2013 or 2014. On a geographical basis, we generated morethan 93% of our total revenues in each of 2012 and 2013, and more than 91% of our total revenues in 2014, from advertisers and other customers with billingaddresses in Russia, including the Russian offices of large multinational advertisers. We serve ads both on our own websites and on the websites of our partners in the Yandex ad network. For text-based ads served on the websites of ourpartners in the Yandex ad network, we recognize as revenue the fees paid to us by advertisers each time a user clicks on one of their text-based ads or, forthose advertisers paying for display ads on a cost-per-thousand impressions basis, as their ads are displayed. We pay our partners in the Yandex ad networkfees for serving our advertisers' ads on their websites. These fees are primarily based on revenue-sharing arrangements. As such, the fees paid to our partners inthe Yandex ad network are calculated as a percentage of the revenues we earn by serving ads on partners' websites. We account for the fees we pay to ourpartners in the Yandex ad network as traffic acquisition costs, a component of cost of revenues. Since we launched our Yandex ad network in 2006, thesecosts annually have, in aggregate, amounted to more than one-half of the revenues we have earned from serving ads on the Yandex ad network and we expectthem to continue to do so in the foreseeable future. Yandex ad network partners do not pay us any fees associated with our serving ads on their websites. Our agreements with our partners in the Yandex ad network generally have an indefinite term but may be terminated by either party at will with notermination fees. Agreements with larger partners in the Yandex ad network are individually negotiated and vary in duration but typically renewautomatically. Our agreement with Mail.ru, for which we began providing paid search in July 2013, is71 Table of Contentssubject to mutual, material early termination penalties under specified circumstances. In 2012, 2013, and 2014, none of our ad network partners accounted formore than 10% of our total revenues. In 2014, Mail.ru continued to be our most significant ad network partner. We believe the most significant factors that influence our ability to continue to increase our advertising revenues include the following:•the level of internet penetration and usage in Russia and the other markets in which we operate; •the absolute and relative level of traffic on our own websites and those of our partners in the Yandex ad network; •the relevance, objectivity and quality of our search results and the quality of our other services and of the Yandex ad network; •our search market share, with a larger market share allowing us to better monetize our users' search activity and attract and retain advertisers, aswell as partners in our Yandex ad network; •the demand for online advertising in Russia and the other markets in which we operate, particularly among small and medium-size businesses; •our ability to effectively monetize traffic generated by our websites and those of the Yandex ad network partners, including throughimprovements to our advanced auction and advertising placement system, while maintaining an attractive return on investment for ouradvertisers; and •our ability to effectively monetize mobile search where the number of search queries is growing more quickly than desktop queries.Segments Prior to 2014, we operated as a single operating segment. During 2014, we revised our organizational structure, separating several focus areas intoproduct lines and geographies. As a result, our Russian businesses are organized in five operating segments:•Russian Search and Portal, which includes all services offered in Russia, Belarus and Kazakhstan, other than those described below; •Russian E-commerce (including the Yandex.Market service); •Media Services (including Yandex.Music, Kinopoisk.ru, Yandex.TV program and Yandex.Kinoafisha); •Taxi (including the Yandex.Taxi service); •Classified Aggregators (including Yandex.Auto, Auto.ru, Yandex.Realty and Yandex.Job). Additionally, our international operations are organized in three operating segments:•Turkish Search and Portal; •Ukrainian Search and Portal; and •Data Factory (including the Yandex.Data Factory service). The Russian Search and Portal and Russian E-commerce segments represent our two reportable segments. The additional operating segments describedabove do not meet the quantitative thresholds for separate reporting and are included in the Other category. Please refer for additional information to note 15to our audited consolidated financial statements included elsewhere in this Annual Report.72 Table of ContentsKey Trends Impacting Our Results of Operations Our results of operations are currently being impacted by the current macroeconomic environment in Russia. This environment is negatively impactingour rate of revenue growth and our operating margins. The depreciation of the Russian ruble has increased our U.S. dollar-denominated expenses, includingthe rent on our Moscow headquarters and the acquisition of servers and networking equipment, and generally increased the rate of inflation in Russia. Inaddition to the impact caused by the current macroeconomic environment, the trends described below are key drivers of our results of operations. Our business and revenues have grown rapidly since inception. The effectiveness of text-based advertising as a medium has contributed to the rapidgrowth of our business. Advertising spending continues to shift from offline to online as the internet evolves and we expect that our business will continue togrow. However, we expect that our revenue growth rate will continue to decline over time as a result of a number of factors, including challenges inmaintaining our growth rate as our revenues increase to higher levels, increasing competition, changes in the nature of queries, the evolution of the overallonline advertising market and the declining rate of growth in internet users in Russia as overall internet penetration increases. Our operating margins, representing our income from operations as a percentage of revenues, may fluctuate in the future depending on the percentage ofour advertising revenues that we derive from the Yandex ad network compared with our own websites. The operating margin we realize on revenuesgenerated from the websites of our partners in the Yandex ad network is significantly lower than the operating margin generated from our own websites. Thislower operating margin arises because of the cost of revenues we incur given that we pay to our partners, on average, more than one-half of the advertisingfees we earn from serving ads on Yandex ad network websites. The percentage of our advertising revenues derived from the Yandex ad network increasedfrom 17.4% in 2012 to 20.8% in 2013 and to 23.7% in 2014 and contributed to the overall decline in our operating margin. We currently expect that theportion of our advertising revenues derived from the Yandex ad network will remain stable in 2015. The principal driver of this is our agreement to powerpaid search on Mail.ru, which began in July 2013. Furthermore, the margin we earn, on average, on revenue generated from the Yandex ad network coulddecrease in the future if we are required to share with our partners a greater percentage of the advertising fees generated through their websites. Growth in mobile search may also have an impact on our operating margins. The number of search queries from mobile telephones, including bothsmartphones and feature phones, and tablet devices is growing more quickly than desktop queries. Queries from mobile phones and tablet devices still,however, represented only 22% of our total search queries and slightly more than 15% of text-based advertising revenues for the year ended December 31,2014. To date, growth in mobile usage has not had a material impact on our pricing, revenues or operating margins; however, we have seen some evidencethat this growth may exert modest downward pressure on our operating margins in the future. Recent and future capital expenditures may also put pressure on our operating margins. Our capital expenditures increased from RUR 3,984 million in2012 to RUR 4,936 million in 2013, and then increased to RUR 9,679 million in 2014. We spent approximately 78% of our total capital expenditures in2014 on servers and data center expansion to support growth in our current operations and potential international expansion. Our depreciation andamortization expense has been gradually declining as a percentage of revenues from 10.3% in 2012 to 9.4% in 2013 and to 8.8% in 2014. We currentlyexpect our capital expenditures in 2015 to increase as a percentage of revenues in comparison to 2014 due to the acquisition of additional servers, primarilyto increase the size of our search index with the goal of further enhancing the general quality of our search and growing our search share. As our capitalexpenditures are to a significant extent denominated in U.S. dollars and euro, the recent depreciation73 Table of Contentsof the Russian ruble will result in a material increase in capital expenditures and depreciation and amortization both as in absolute terms and as a percentageof revenues. To support further brand enhancement and respond to competitive pressures, we spent larger amounts in 2013 and 2014 on advertising and marketingthan we have spent historically, both in absolute terms and as a percentage of revenue. A significant portion of our advertising and marketing expense in2013 and 2014 relates to our efforts to build our brand and expand market share in Turkey, as well as to promote our Yandex.Market and Yandex.Browserand to support our brand in Russia and the other markets in which we operate. We expect to continue to invest significantly in advertising and marketing.This spending could negatively impact our operating margin if it does not drive revenue growth in the manner that we anticipate. Our operating margin may also decline as a result of entering into more arrangements with partners that distribute our Yandex.Elements collection ofservices or that otherwise direct search queries to our website. We generally compensate our distribution partners on either a revenue-sharing basis or on thebasis of the number of our browser toolbars or search bars installed. We expect to continue to expand the number of our distribution relationships in order toincrease our user base and to make it easier to access our services. One of our strategic objectives is to expand internationally. For example, in Turkey we offer a variety of services and apps for both desktop and mobileplatforms localized for that market, including search, mail, news, maps, traffic, weather, music, browser and mobile shell. As we seek to increase our Turkishuser base, we will continue to incur costs to tailor our site to address the preferences and needs of users in Turkey and to acquire local content and services.International expansion also requires the development of new technologies, such as technology for storing web documents in different languages anddocument prioritization technology. Our international expansion efforts will continue to require us to incur additional costs that may contribute to a declinein our operating margins until we succeed in building the user base necessary to begin generating sufficient revenues in these new jurisdictions to earnaccretive operating margins there. In addition, in certain countries we may choose to pursue joint venture arrangements as a means of developing our localofferings. Such arrangements may entail additional financial commitments and risks. Our revenues are impacted by seasonal fluctuations in internet usage and seasonality in advertising expenditures. Internet usage and advertisingexpenditures generally slow down during the months of January, May, June and July, when there are extended Russian public holidays and vacations, andare significantly higher in the fourth quarter of each year. Moreover, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions,retail patterns and advertising budgeting and buying patterns. Inflation in Russia has also impacted our results of operations and may continue to do so. According to Rosstat, the consumer price index in Russiaincreased by 6.6%, 6.5% and 11.4% in 2012, 2013, and 2014, respectively. The annual rate of inflation increased in 2014 due to depreciation of the Russianruble. We can provide no assurance that the annual rate of inflation will not appreciate further in 2015. Higher rates of inflation may accelerate increases inour operating expenses and capital expenditures and reduce the value and purchasing power of our ruble-denominated assets, such as cash, cash equivalentsand term deposits. Changes in the value of the U.S. dollar compared with the Russian ruble can also negatively affect our results of operations. See "Quantitative andQualitative Disclosures About Market Risk—Foreign Currency Exchange Risk."74 Table of ContentsRecent AcquisitionsSeismotech In July 2012, we completed the acquisition of a 25% ownership interest in Seismotech LLC, a Russian-based geophysical data processing company, forRUR 27 million. We also have a 3-year option to buy another 25% interest in that company at a fixed price.KinoPoisk In October 2013, we completed the acquisition of a 100% ownership interest in KinoPoisk LLC and its subsidiary, the operator of the largest and mostcomprehensive Russian-language website dedicated to movies, television programs and celebrities. In connection with this acquisition, we paid cashconsideration of $80.0 million in full upon the closing of the deal, including $3.0 million paid into an escrow account. The amount in escrow will be paid tothe sellers on the second anniversary of the closing assuming no warranty claims. A further description of the acquisition and its accounting implications canbe found in note 4 of our audited consolidated financial statements included elsewhere in this Annual Report.KitLocate In March 2014, we completed the acquisition of a 100% ownership interest in KitLocate Ltd., the developer of an energy-efficient geolocationtechnology for mobile devices, for cash consideration of up to $10.2 million. The components of the consideration include $4.0 million paid in full uponclosing of the deal, $3.9 million paid into an escrow account that will be released periodically during the four years following the completion date to theKitLocate founders subject to their continued employment with us, and $2.3 million (RUR 84 million at the exchange rate as of the acquisition date) of earn-out payments to be paid on the achievement of certain distribution milestones.Auto.ru In August 2014, we completed the acquisition of Auto.ru group ("Auto.ru"), one of the leading online auto classifieds businesses in Russia, for cashconsideration of $178.4 million paid in full upon closing of the deal, including $14.0 million paid into an escrow account. The amount in escrow will bepaid to the sellers in two instalments, 50% on the date falling 18 months after the completion date and the remaining 50% on the date falling 43 months afterthe completion date, assuming no warranty claims.ADFOX In September 2014, we bought the assets and assumed the liabilities of ADFOX LLC ("ADFOX") business, which, operates an advertising technologyplatform that provides services for planning, managing and analyzing advertising campaigns on the internet. We paid cash consideration of $11.3,$8.5 million (RUR 336 million at the exchange rate as of the acquisition date) of which was paid upon closing of the deal and $2.8 million of which will bepaid to the sellers in two tranches on the first and the second anniversary of the completion closing assuming no warranty claims.Other During the year ended December 31, 2014, we completed other acquisitions and purchases of intangible assets for total consideration of approximatelyRUR 347 million. A further description of the acquisitions and their accounting implications can be found in note 4 of our audited consolidated financial statementsincluded elsewhere in this Annual Report.75 Table of ContentsRosTaxi In January 2015, we bought the assets and assumed the liabilities of the RosTaxi ("RosTaxi") business, which operates a taxi fleet managementapplication. We paid cash consideration of up to RUR 500 million, including a deferred payment of up to RUR 380 million, subject to successful technicalintegration and client base transition, and contingent payment for post acquisition services of the founders of up to RUR 500 million payable in our Class Aordinary shares on the third anniversary of the closing, depending on the number of qualifying taxi trips.Recent DispositionsFace.com In July 2012, we completed the sale of our ownership interest in Face.com, Inc. (formerly Vizi Information Labs Ltd.) to a subsidiary of Facebook, Inc. forcash consideration of $5.7 million and 142,479 shares of Facebook, of which we sold 93,971 shares in 2013 and 48,508 shares in 2014.Yandex.Money In July 2013, we completed the sale of a 75% (less one ruble) interest in Yandex.Money to Sberbank for $59.1 million in cash. Concurrent with the saleof our interest in Yandex.Money, we formed a joint venture with Sberbank in respect of this business, which continues under the Yandex.Money brand. As aresult of this sale, we deconsolidated Yandex.Money and no longer show its online payment commissions as revenue. Since July 2013, we have accountedfor Yandex.Money using the equity method, and, therefore, we record our share of the results of operations of the joint venture within the other income, net,line on our consolidated statements of income.Results of Operations The following table presents our historical consolidated results of operations as a percentage of revenues for the periods indicated:76 Year ended December 31, 2012 2013 2014 Revenues 100.0% 100.0% 100.0%Operating costs and expenses: Cost of revenues 25.0 26.8 28.2 Product development 14.8 14.8 17.5 Sales, general and administrative 17.0 16.5 15.3 Depreciation and amortization 10.3 9.4 8.8 Total operating costs and expenses 67.1 67.5 69.8 Income from operations 32.9 32.5 30.2 Interest income 3.5 4.3 1.7 Other income, net 0.4 5.5 12.4 Net income before income taxes 36.8 42.3 44.3 Provision for income taxes 8.2 8.2 10.8 Net income 28.6% 34.1% 33.5% Table of Contents Our consolidated operating margin has decreased each year under review from 32.9% in 2012 to 32.5% in 2013 and 30.2% in 2014. This decrease wasprimarily due to increases in traffic acquisition costs paid to our partners in the Yandex ad network each year as a percentage of our total revenues and toincreases in rent expenses attributable to additional office space we began leasing in Moscow in May 2014 and to the fact that rent for our Moscowheadquarters is U.S. dollar-denominated. The following table presents our historical results of operations by reportable segment for the periods indicated: Eliminations represent the elimination of transaction results between the reporting units, primarily related to advertising. Operating costs and expensesof reporting units excludes share-based compensation expense.77 Year ended December 31, 2012 2013 2014 Revenues Russian Search and Portal 25,828 35,294 45,814 Russian E-commerce 2,081 2,907 3,130 Other 1,150 1,689 2,334 Eliminations (292) (388) (511)Total revenues 28,767 39,502 50,767 Operating costs and expenses Russian Search and Portal 17,250 22,943 29,420 Russian E-commerce 415 633 1,192 Other 1,564 2,723 4,133 Eliminations (292) (388) (511)Total operating costs and expenses 18,937 25,911 34,234 Adjusted operating income Russian Search and Portal 8,578 12,351 16,394 Russian E-commerce 1,666 2,274 1,938 Other (414) (1,034) (1,799)Eliminations — — — Total adjusted operating income 9,830 13,591 16,533 Table of ContentsRevenues The following table presents our consolidated revenues, by source, in absolute terms and as a percentage of total revenues for the periods presented: Advertising revenues. Total advertising revenues increased by RUR 11,299 million, or 29.1%, from 2013 to 2014 and by RUR 10,748 million, or38.2%, from 2012 to 2013. Advertising revenue growth over the periods under review resulted primarily from growth in sales of text-based ads, driven by anincrease in the number of paid clicks and fluctuations in average cost-per-click paid by our advertisers. As a result of current macroeconomic environment inRussia, we currently expect the rate of advertising revenue growth in 2015, as compared to 2014, to decrease materially. Paid clicks on our own websites together with those of our Yandex ad network partners increased 29% from 2013 to 2014 and 38% from 2012 to 2013.The average cost-per-click on our own websites together with those of our partners in the Yandex ad network increased 2% from 2013 to 2014 and 1% from2012 to 2013, reflecting supply and demand dynamics.78 Year ended December 31, 2012 2013 2014 RUR % of Revenues RUR % of Revenues RUR % of Revenues (in millions of RUR, except percentages) Advertising revenues(1): Text-based advertising: Yandex websites 20,610 71.6% 27,584 69.8% 35,228 69.4%Yandex ad network websites 4,898 17.1 7,885 20.0 11,410 22.5 Total text-based advertising 25,508 88.7 35,469 89.8 46,638 91.9 Display advertising: Yandex websites 2,581 9.0 3,185 8.1 3,034 6.0 Yandex ad network websites 11 — 194 0.4 475 0.9 Total display advertising 2,592 9.0 3,379 8.5 3,509 6.9 Total advertising revenues 28,100 97.7 38,848 98.3 50,147 98.8 Online payment commissions(2) 552 1.9 394 1.0 — — Other revenues 115 0.4 260 0.7 620 1.2 Total revenues 28,767 100.0% 39,502 100.0% 50,767 100.0%(1)We record revenue net of VAT, commissions and discounts. Because it is impractical to track commissions and discounts foradvertising revenues generated on our own websites and on those of our partners in the Yandex ad network separately, we haveallocated commissions and discounts between our own websites and those of our partners in the Yandex ad network proportionally totheir respective revenue contributions. (2)In connection with our sale of a 75% (less one ruble) interest in Yandex.Money to Sberbank, we ceased recording online paymentcommissions as revenues as of July 2013 and now account for Yandex.Money using the equity method. See "Recent Dispositions." Table of Contents During the periods under review, the year-over-year rates of change in paid clicks and average cost-per-click on a quarterly basis were as follows: The fluctuations in paid clicks and in average cost-per-click during the periods under review were driven primarily by the following factors:•Growth in the number of internet users in Russia. The number of internet users in Russia grew at a compound annual growth rate of 12% fromfall 2010 to fall 2014, reaching 72.3 million, according to FOM. As internet usage has spread, the rate of growth has been declining, with thenumber of users in Russia increasing by 12% from fall 2011 to fall 2012, 9% from fall 2012 to fall 2013, and 9% from fall 2013 to fall 2014,according to FOM. •Increased traffic and search market share; growth in mobile search queries. Our share of the Russian internet search market increased from60% in 2012 to 62% in 2013, principally as a result of improvements in our search engine algorithms and more traffic being delivered throughnew and existing distribution partners. In 2014 our share decreased to 61%. For the first quarter of 2015, our share was 59%. Mobile searchtraffic as a percentage of our overall search traffic has been continually growing and in the full year 2014 comprised 22% of all search queries,compared with 14% in 2013, 10% in 2012 and 6% in 2011. •Growth in the size of the Russian online advertising market. The total Russian online advertising market grew from RUR 56.3 billion in 2012,to RUR 71.7 billion in 2013 and to RUR 84.6 billion in 2014, according to the Russian Association of Communication Agencies ("AKAR").According to our internal calculations (based on AKAR data), our share of the Russian online advertising market was 59% in 2014. The rate of change in paid clicks and average cost-per-click, and their correlation with the rate of increase in our revenues, may fluctuate from period toperiod based on the factors described above, as well as other factors such as seasonality, advertiser competition for keywords, our ability to launch enhancedadvertising products that seek to deliver increasingly targeted ads, the fees advertisers are willing to pay based on how they manage their advertising costs,and general economic conditions. Display advertising revenues. Display advertising revenues accounted for approximately 6.9% of total revenues in 2014, compared with 8.5% in 2013and 9.0% in 2012. The decrease in 2014 is primarily due to the macroeconomic environment in Russia. We expect display advertising revenues to beimpacted more significantly than text-based ad revenues by the current economic environment. Online payment commissions Online payment commissions decreased from 1.9% of total revenues for 2012 to 1.0% of total revenues for 2013,reflecting our sale of a 75% (less one ruble) interest in79Quarter Year-over-yeargrowth in paidclicks, % Year-over-yeargrowth incost-per-click, % First Quarter 2012 61 (5)Second Quarter 2012 62 (7)Third Quarter 2012 35 5 Fourth Quarter 2012 26 11 First Quarter 2013 18 14 Second Quarter 2013 29 5 Third Quarter 2013 50 (5)Fourth Quarter 2013 52 (7)First Quarter 2014 49 (5)Second Quarter 2014 36 2 Third Quarter 2014 19 8 Fourth Quarter 2014 18 3 Table of ContentsYandex.Money to Sberbank in July 2013, following which we no longer record Yandex.Money's online payment commissions as revenue. We concurrentlyformed a joint venture with Sberbank with respect to the Yandex.Money business and now account for Yandex.Money using the equity method ofaccounting. Other revenues. Other revenues principally represent paid services and sublease revenues. Other revenues doubled due to the development of paid non-advertising services such as our Yandex.Taxi service. Revenues by reportable segment. Our revenues attributable to Russian Search and Portal segment increased by RUR 10,520 million, or 29.8%, from2013 to 2014 and by RUR 9,466 million, or 36.7%, from 2012 to 2013. The growth in this segment's revenues is in line with growth in our advertisingrevenues. Russian Search and Portal revenues accounted for approximately 90.2% of total revenues in 2014, compared with 89.3% in 2013 and 89.8% in2012. Our revenues attributable to Russian E-commerce segment increased by RUR 223 million, or 7.7%, from 2013 to 2014 and by RUR 826 million, or39.7%, from 2012 to 2013. Russian E-commerce revenues accounted for approximately 6.2% of total revenues in 2014, compared with 7.4% in 2013 and7.2% in 2012. The decrease of this segment's share in total revenues in 2014 is primarily due to impact of the macroeconomic environment in Russiafollowing the significant depreciation of the Russian ruble and increasing competition in the industry. Our revenues attributable to the other operating segments increased by RUR 645 million, or 38.2%, from 2013 to 2014 and by RUR 539 million, or46.9%, from 2012 to 2013. These revenues accounted for approximately 4.6% of total revenues in 2014, compared with 4.3% in 2013 and 4.0% in 2012.Operating Costs and Expenses Our operating costs and expenses consist of cost of revenues; product development expenses; sales, general and administrative expenses; anddepreciation and amortization expense. In addition to the reasons discussed below with respect to each category, we generally expect our total operatingcosts and expenses to increase in absolute terms and as a percentage of revenues in the near term; see "—Key Trends Impacting Our Results of Operations". Cost of revenues. Cost of revenues consists primarily of traffic acquisition costs. Traffic acquisition costs are the amounts paid to our partners in theYandex ad network for serving our text-based and display ads on their websites and to our partners who distribute our Yandex.Elements collection of servicesor otherwise direct search queries to our websites. These amounts are primarily based on revenue-sharing arrangements. Some of our distribution partners arecompensated on the basis of the number of Yandex browser toolbars or search bars installed. The agreements with our distribution partners provide for payment of fees to them on a non-refundable basis following the period in which thedistribution fees are earned. We do not have a standard term or termination provision that applies to agreements with our distribution partners. Our largestdistribution partner since 2012, Opera, accounted in aggregate for 23.7% of our distribution costs in 2014, 28% in 2013 and 37% in 2012. The Operaagreement also provides for a 12-month "revenue tail" period should that agreement be terminated. Cost of revenues also includes the expenses associated with the operation of our data centers, including related personnel costs, rent, utilities andtelecommunications bandwidth costs, as well as content acquisition costs.80 Table of Contents The following table presents the primary components of our cost of revenues in absolute terms and as a percentage of revenues for the periods presented: Cost of revenues increased by RUR 3,730 million, or 35.2%, from 2013 to 2014, primarily due to a RUR 3,226 million increase in traffic acquisitioncosts, and by RUR 3,418 million, or 47.6%, from 2012 to 2013, primarily due to an increase of RUR 3,070 million in traffic acquisition costs. The majority ofour traffic acquisition costs relate to the Yandex ad network, with a smaller portion relating to distribution relationships. Traffic acquisition costs relating tothe Yandex ad network, both for our text-based and our display advertising, increased by RUR 2,143 million from 2013 to 2014 and by RUR 2,249 millionfrom 2012 to 2013, representing our Yandex ad network partners' share in an increased amount of Yandex ad network revenue for the period, with theprincipal driver of this increase being our agreement to power paid search on Mail.ru starting from July 1, 2013. In addition, the amounts paid to ourdistribution partners increased by RUR 1,083 million from 2013 to 2014 and by RUR 821 million from 2012 to 2013 due to growth in our existingdistribution relationships, as well as the addition of new distribution partners. As a percentage of total revenues, traffic acquisition costs increased from16.6% in 2012 to 19.9% in 2013 and 21.8% in 2014, representing the increase in our Yandex ad network revenues as a share of total revenues. While totaltraffic acquisition costs increased, network partner traffic acquisition costs as a percentage of network partner revenues remained broadly flat, at 63% in 2014compared with 66% in 2013 and 64% in 2012, and distribution traffic acquisition costs as a percentage of text-based revenues from our own sites remainedflat, at 8% of text-based revenue in 2012, 9% in 2013 and at 10% of text-based revenue in 2014. Other cost of revenues decreased as a percentage of total revenues from 7.0% in 2013 to 6.4% in 2014, but increased by RUR 504 million in absoluteterms mainly due to an increase of RUR 227 million in personnel costs, RUR 254 million in content acquisition and costs for outsourced services, RUR119 million of rent and utilities costs related mainly to our Moscow premises and RUR 40 million in additional share-based compensation expense. Theincreases were partly offset by the absence of the cost of online payment commissions and other cost of revenues related to Yandex.Money of RUR136 million starting from July 2013. The increase in personnel costs over those periods was driven primarily by growth in our headcount that is allocated tocost of revenues, from 380 as of December 31, 2012, including 67 employees of Yandex.Money, to 387 as of December 31, 2013 and to 461 as ofDecember 31, 2014. In 2013, other cost of revenues increased by RUR 348 million compared to 2012, primarily due to an increase of RUR 168 million in personnel costs,RUR 170 million in rent and utilities costs related mainly to our data centers, RUR 32 million in additional costs for outsourced services and RUR 28 millionin additional share-based compensation expense, partly offset by RUR 50 million decrease in costs of sales related to Yandex.Money.81 Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Traffic acquisition costs: Traffic acquisition costs related to the Yandex ad network 3,128 5,377 7,520 Traffic acquisition costs related to distribution partners 1,652 2,473 3,556 Total traffic acquisition costs 4,780 7,850 11,076 as a percentage of revenues 16.6% 19.9% 21.8%Other cost of revenues 2,408 2,756 3,260 as a percentage of revenues 8.4% 7.0% 6.4%Total cost of revenues 7,188 10,606 14,336 as a percentage of revenues 25.0% 26.8% 28.2% Table of Contents We anticipate that cost of revenues will continue to increase in absolute terms primarily as a result of increases in traffic acquisition, content and datacenter costs, but will remain flat as a percentage of revenues in the near term. The primary drivers of increases in our future traffic acquisition costs are theincrease of revenues derived from the websites of our partners in the Yandex ad network, as well as the extent to which we use distribution partners to directsearch queries to our website, partly offset by the change in the mix of Yandex ad network partners to partners with more favourable terms. In addition, ourtraffic acquisition costs as a percentage of advertising revenues may fluctuate in the future based on whether we are successful in negotiating more Yandex adnetwork and distribution arrangements that provide for lower revenue-sharing obligations or, alternatively, in less favorable revenue-sharing arrangements asresult of increased competition for these arrangements with existing and potential new partners results. Product development. Product development expenses consist primarily of personnel costs incurred for the development, enhancement and maintenanceof our search engine and other Yandex services and technology platforms. We also include rent and utilities attributable to office space occupied bydevelopment staff in product development expenses. We expense product development costs as they are incurred. The following table presents our product development expenses in absolute terms and as a percentage of revenues for the periods presented: Product development expenses increased by RUR 3,015 million, or 51.7%, from 2013 to 2014 and by RUR 1,553 million, or 36.3%, from 2012 to 2013.These increases were primarily due to increases in personnel expenses, office rental costs for our Moscow headquarters, which are U.S. dollar denominated,and share-based compensation resulting from increases in headcount and salary over the periods. Development personnel headcount increased from 2,027 asof December 31, 2012, including 71 employees of Yandex.Money, to 2,924 as of December 31, 2013 and to 3,329 as of December 31, 2014. As a percentageof revenues, product development expenses increased from 2013 to 2014 reflecting more rapid growth in personnel costs. As a percentage of revenues,product development expenses decreased slightly from 2012 to 2013 reflecting more rapid growth in revenues from the Yandex ad network compared withrevenues from Yandex websites. Because product development expenses are primarily attributable to Yandex websites and services development, expansionof the Yandex ad network does not require proportionate increases in this expense category. In light of the current macroeconomic environment, we anticipate that product development expenses will increase in absolute terms and as a percentageof revenues in 2015. Sales, general and administrative. Sales, general and administrative expenses consist of compensation and office rent expenses for personnel engagedin customer service, sales, sales support, finance, human resources, facilities, information technology and legal functions; fees for professional services; andadvertising and marketing expenditures.82 Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Product development expenses 4,274 5,827 8,842 as a percentage of revenues 14.9% 14.8% 17.5% Table of Contents The following table presents our sales, general and administrative expenses in absolute terms and as a percentage of revenues for the periods presented: Sales, general and administrative expenses increased by RUR 1,245 million, or 19.0%, from 2013 to 2014 and by RUR 1,637 million, or 33.4%, from2012 to 2013, but decreased as a percentage of revenues from 2013 to 2014. The increase in absolute terms was due to increases in personnel expenses ofRUR 547 million in 2014 compared to 2013 and of RUR 210 million in 2013 compared to 2012. The increase in personnel expenses resulted from a rise insales, general and administrative headcount from 1,354 as of December 31, 2012, including 137 employees of Yandex.Money, to 1,591 as of December 31,2013 and to 1,826 as of December 31, 2014. In addition, increased headcount and depreciation of the Russian ruble resulted in corresponding increases inallocable office rent and utilities of RUR 340 million in 2014 compared to 2013 and of RUR 99 million in 2013 compared to 2012. The increase inheadcount across all functional areas from 2014 to 2013 also resulted in increases in general and administrative expenses, including an increase of RUR105 million in business travel expenses partially driven by the geographical expansion of our business, and RUR 53 million in recruiting and trainingexpenses. With respect to 2014 compared to 2013, additional factors contributing to the overall increase were an increase of RUR 71 million in share-basedcompensation expense, and an increase of RUR 132 million in bank commission expenses as we started to record commissions for online paymentsprocessing by Yandex.Money since July 2013. With respect to 2013 compared to 2012, an additional factor contributing to the overall increase was anincrease of RUR 808 million in advertising and marketing expenses driven primarily by increased advertising and marketing expenses in Russia and inTurkey, RUR 143 million in legal, audit and consulting expenses, RUR 136 million in share-based compensation expense, RUR 122 million in businesstravel expenses, RUR 52 million in recruiting and training expenses and RUR 83 million in bank commission expenses related to Yandex.Money. While sales, general and administrative expenses increased in absolute terms, the corresponding decrease of sales, general and administrative expenses asa percentage of revenues in 2014 compared to 2013 reflects a more robust growth in revenues than in these types of expenses. We anticipate that our sales, general and administrative expenses will continue to increase in absolute terms and as a percentage of revenues in 2015 aswe continue to invest in our business. These increases will relate primarily to increased personnel and office rent expenses, as well as anticipated increases inadvertising and marketing expenses. Depreciation and amortization. Depreciation and amortization expense relates to the depreciation of our property and equipment, mainly servers andnetworking equipment, leasehold improvements, data center equipment and office furniture, and the amortization of our intangible assets with definite lives.83 Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Sales, general and administrative expenses 4,900 6,537 7,782 as a percentage of revenues 17.0% 16.5% 15.3% Table of Contents The following table presents our depreciation and amortization expense in absolute terms and as a percentage of revenues for the periods presented: Depreciation and amortization expense increased by RUR 789 million, or 21.4%, from 2013 to 2014 and by RUR 744 million, or 25.2%, from 2012 to2013. The increases in absolute terms for 2014 as compared to 2013 and for 2013 as compared to 2012 were primarily due to RUR 313 million and RUR539 million increases, respectively, in depreciation expense related to server and network equipment and infrastructure systems, RUR 310 million and RUR138 million increases, respectively, in amortization expense related to purchased technologies and licenses, and RUR 48 million and RUR 57 millionincreases, respectively, in depreciation expense related to office furniture and equipment. In 2014 compared to 2013, the increase in absolute terms was alsoattributable to a RUR 131 million increase in amortization expense related to intangible assets. The increases in depreciation and amortization expense forthese categories was the result of capital expenditures in 2012, 2013 and 2014 and the acquisitions of new businesses, including SPB Software in November2011, Kinopoisk in October 2013 and Auto.ru in August 2014. We anticipate that depreciation and amortization expense will increase in absolute terms and as a percentage of revenues in the near term as we continueto invest in our technology infrastructure and in business acquisitions. The recent depreciation of the Russian ruble will also result in material increase in ourcapital expenditures and respective depreciation and amortization. Share-based compensation. In our consolidated statements of income, share-based compensation expense is recorded in the same functional area as theexpense for the recipient's cash compensation. As a result, share-based compensation expense is allocated among our cost of revenues, product developmentexpenses and sales, general and administrative expenses. The following table presents our aggregate share-based compensation expense in absolute terms and as a percentage of revenues for the periodspresented: Share-based compensation expense increased by RUR 456 million, or 60.5%, from 2013 to 2014, because of new equity-based awards granted in 2013and 2014 and material depreciation of the Russian ruble, as share-based compensation expense is denominated in U.S. dollars. Share-based compensation expense increased by RUR 378 million, or 100.5%, from 2012 to 2013, primarily because of new equity-based awards grantedin 2012 and 2013. We anticipate that share-based compensation expense will increase in absolute terms and as a percentage of revenues in near term because of new equity-based awards and recent depreciation of the Russian ruble.84 Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Depreciation and amortization expense 2,951 3,695 4,484 as a percentage of revenues 10.3% 9.4% 8.8% Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Share-based compensation expense 376 754 1,210 Share-based compensation expense as a percentage of revenues 1.3% 1.9% 2.4% Table of Contents Operating Costs and Expenses by reportable segments. Our operating costs and expenses attributable to the Russian Search and Portal segmentincreased by RUR 6,477 million, or 28.2%, from 2013 to 2014 and by RUR 5,693 million, or 33.0%, from 2012 to 2013. These increases were primarily dueto increases in traffic acquisition costs, depreciation and amortization expense, and personnel expenses and allocable office rent and utilities resulting fromincreases in headcount and salary over the periods. With respect to 2013 compared to 2012, an additional factor contributing to the overall increase was anincrease of RUR 486 million in advertising and marketing expenses. Our operating costs and expenses attributable to the Russian E-commerce segment increased by RUR 559 million, or 88.3%, from 2013 to 2014 and byRUR 218 million, or 52.5%, from 2012 to 2013. These increases were primarily due to increases in personnel expenses and allocable office rent and utilitiesresulting from increases in headcount and salary over the periods as we continue to invest in the development of the service. With respect to 2014 comparedto 2013, an additional factor contributing to the overall increase was an increase of RUR 209 million in advertising and marketing expenses. Our operating costs and expenses attributable to the other operating segments increased by RUR 1,410 million, or 51.8%, from 2013 to 2014 and byRUR 1,159 million, or 74.1%, from 2012 to 2013. These increases were primarily due to increases in personnel expenses and allocable office rent and utilitiesresulting from increases in headcount and salary over the periods. With respect to 2013 compared to 2012, an additional factor contributing to the overallincrease was an increase of RUR 306 million in advertising and marketing expenses.Interest Income, Net Interest income, net consists of interest earned on our cash, cash equivalents, term deposits and investments in debt securities, partially offset by interestexpense representing coupon and amortization of debt discount and issuance costs related to our convertible notes issued in December 2013. We derive aconsiderable portion of our interest income from ruble term deposits held in major Russian banks. Investments in term deposits, money market funds and debtsecurities held in the Netherlands generally yield considerably lower returns. Interest income, net decreased from RUR 1,717 million in 2013 to RUR 856 million in 2014, as a result of recording interest expense of RUR 1,091representing coupon and amortization of debt discount and issuance costs related to our convertible notes issued in December 2013. Interest income, net increased from RUR 1,002 million in 2012 to RUR 1,717 million in 2013, principally as a result of investing more of our cash fromoperating activities in Russia, where our investments earn significantly higher returns.Other Income, Net Our other income net primarily consists of foreign exchange gains and losses generally resulting from changes in the value of the U.S. dollar comparedwith the Russian ruble, and other non-operating gains and losses, including gains from the sale of equity securities/subsidiaries, gain from repurchases ofconvertible notes and losses and impairment of investments in equity securities.85 Table of Contents The following table presents the components of our other income, net in absolute terms and as a percentage of revenues, for the periods presented: Because the functional currency of our operating subsidiaries in Russia is the Russian ruble, changes in the ruble value of these subsidiaries' monetaryassets and liabilities that are denominated in other currencies (primarily the U.S. dollar) due to exchange rate fluctuations are recognized as foreign exchangegains or losses in our income statement. In 2012 and 2013, we recorded in our primary Russian subsidiary as other income, net a RUR 57 million loss and aRUR 127 million gain in 2012 and 2013, respectively, arising from changes in the value of the U.S. dollar compared with the Russian ruble during the year.In 2014, because of the material depreciation of the ruble, we recorded foreign exchange gain of RUR 6,524 million. Although the U.S. dollar value of ourU.S. dollar-denominated cash, cash equivalents and term deposits are not impacted by these currency fluctuations, they result in upward and downward re-valuations of the ruble equivalent of these U.S. dollar-denominated monetary assets. In 2012, gain from the sale of equity securities/subsidiaries represents the gain from the sale of our ownership interest in Face.com Inc. In 2013, gain fromthe sale of equity securities/subsidiaries primarily consisted of a RUR 2,035 million gain from our sale of a 75% (less one ruble) interest in Yandex.Money toSberbank in July 2013. In 2014, we repurchased $150 million in principal amount of our outstanding convertible notes for $131.1 million resulting in a gainof RUR 548 million. Also in 2014, we recorded an impairment on our minority equity investment in Blekko Inc. of RUR 700 million. Items recognised as "Other" in "Other income, net" includes equity income from securities/subsidiaries changes in the fair value of derivative instrumentsand other non-operating gains and losses.Provision for Income Taxes The following table presents our provision for income taxes and effective tax rate for the periods presented: Our provision for income taxes increased by RUR 2,216 million from 2013 to 2014 and by RUR 888 million from 2012 to 2013, primarily as a result ofan increase in taxable income.86 Year endedDecember 31, 2012 2013 2014 (in millions of RUR,except percentages) Foreign exchange (losses)/gains (57) 139 6,553 Gain from sale of equity securities/subsidiaries 234 2,137 — Gain from repurchases of convertible debt — — 548 Impairment of investments in equity securities — — (700)Other (59) (117) (105)Total other income, net 118 2,159 6,296 Total other income, net, as a percentage of revenues 0.4% 5.5% 12.4% Year ended December 31, 2012 2013 2014 (in millions of RUR,except percentages) Provision for income taxes 2,351 3,239 5,455 Effective tax rate 22.2% 19.4% 24.3% Table of Contents Our effective tax rate increased by 4.9 percentage points from 2013 to 2014. Our effective tax rate was higher in 2014 than in 2013 because in the firstquarter of 2014 we began to accrue for a 5% dividend withholding tax on the portion of the current year profit of our principal Russian operating subsidiarythat we considered not to be permanently reinvested in Russia. Adjusted for this tax, our effective tax rate for 2014 would have been 22.2%. Our effective tax rate decreased by 2.8 percentage points from 2012 to 2013 primarily reflecting a significant non-taxable gain from the sale ofYandex.Money in July 2013. Adjusted for this gain, our effective tax rate for 2013 would have been 22.1%. See "Critical Accounting Policies, Estimates and Assumptions—Tax Provisions" for additional information about our provision for income taxes. A reconciliation of our statutory income tax rate to our effective tax rate is set forth in note 10 of our audited consolidated financial statements includedelsewhere in this Annual Report.Quarterly Results of Operations The following tables present our unaudited quarterly results of operations in rubles and as a percentage of revenue for the eight consecutive quartersended December 31, 2014. You should read the following tables together with our consolidated financial statements and related notes contained elsewhere inthis Annual Report. We have prepared the unaudited quarterly information on the same basis as our audited consolidated financial statements. These tablesinclude normal recurring adjustments that we consider necessary for a fair presentation of our results of operations for the quarters presented. Both seasonal fluctuations in internet usage and seasonality in advertising expenditures have affected, and are likely to continue to affect, our business.Internet usage and advertising expenditures generally slow down during the summer months and increase significantly in the fourth quarter of each year.Moreover, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Because the functional currency of our operating subsidiaries in Russia is the Russian ruble, changes in the ruble value of these subsidiaries' monetaryassets and liabilities that are denominated in other currencies (primarily the U.S. dollar) due to exchange rate fluctuations are recognized as foreign exchangegains or losses in our income statement. As a result, our quarterly results of operations have been and will likely continue to be affected by the impact offoreign currency fluctuations on our reported results of operations, particularly changes in the value of the U.S. dollar as compared to the Russian ruble.87 Table of Contents Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.88 Quarter ended Mar 31,2013 Jun 30,2013 Sep 30,2013 Dec 31,2013 Mar 31,2014 Jun 30,2014 Sep 30,2014 Dec 31,2014 (in millions of RUR) Consolidated statements of incomedata: Revenues 7,999 9,199 10,218 12,086 10,885 12,158 13,057 14,667 Operating costs and expenses: Cost of revenues(1) 1,976 2,158 2,931 3,541 3,332 3,427 3,570 4,007 Product development(1) 1,328 1,381 1,467 1,651 2,004 2,079 2,086 2,673 Sales, general and administrative(1) 1,363 1,530 1,661 1,983 1,762 1,907 1,810 2,303 Depreciation and amortization 879 912 914 990 1,069 1,114 1,095 1,206 Total operating costs and expenses 5,546 5,981 6,973 8,165 8,167 8,527 8,561 10,189 Income from operations 2,453 3,218 3,245 3,921 2,718 3,631 4,496 4,478 Interest income, net 368 452 483 414 172 203 224 257 Other (expense)/income, net 26 17 2,022 94 668 (617) 1,070 5,175 Income before income taxes 2,847 3,687 5,750 4,429 3,558 3,217 5,790 9,910 Provision for income taxes 601 772 783 1,083 878 821 1,418 2,338 Net income 2,246 2,915 4,967 3,346 2,680 2,396 4,372 7,572 (1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share-based compensationexpense. Quarter ended Mar 31,2013 Jun 30,2013 Sep 30,2013 Dec 31,2013 Mar 31,2014 Jun 30,2014 Sep 30,2014 Dec 31,2014 As a percentage of revenues: Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Operating costs and expenses: Cost of revenues(1) 24.7 23.5 28.7 29.3 30.6 28.2 27.3 27.3 Product development(1) 16.6 15.0 14.4 13.7 18.4 17.0 16.0 18.3 Sales, general and administrative(1) 17.0 16.6 16.3 16.4 16.2 15.7 13.9 15.7 Depreciation and amortization 11.0 9.9 8.9 8.2 9.8 9.2 8.4 8.2 Total operating costs and expenses 69.3 65.0 68.3 67.6 75.0 70.1 65.6 69.5 Income from operations 30.7 35.0 31.7 32.4 25.0 29.9 34.4 30.5 Interest income 4.6 4.9 4.8 3.4 1.6 1.7 1.7 1.8 Other (expense)/income, net 0.3 0.2 19.8 0.8 6.1 (5.1) 8.2 35.3 Income before income taxes 35.6 40.1 56.3 36.6 32.7 26.5 44.3 67.6 Provision for income taxes 7.5 8.4 7.7 8.9 8.1 6.8 10.8 16.0 Net income 28.1% 31.7% 48.6% 27.7% 24.6% 19.7% 33.5% 51.6%(1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share-based compensationexpense. Table of ContentsLiquidity and Capital Resources As of December 31, 2014, we had RUR 49,171 million in cash, cash equivalents, and term deposits. Cash equivalents consist of bank deposits withoriginal maturities of three months or less, current term deposits consist of bank deposits with original maturities of more than three months but no more thanone year, and non-current term deposits are bank deposits with original maturities of more than one year. Our current treasury policy permits us to hold up to50% of our total cash, cash equivalents, term deposits and debt securities in U.S. dollars and, additionally, to accumulate U.S. dollars for repayment of ourconvertible debt in 2018. In order to achieve this split of our currency holdings, we currently convert a portion of the rubles received from operations, as wellas from maturing deposits, into U.S. dollars. We maintain our U.S. dollar-denominated accounts principally in the Netherlands and in Russia. Our U.S. dollar-denominated holdings as of December 31, 2014 accounted for approximately 54.7% of our cash, cash equivalents and term deposits. The net proceeds to us in December 2013 from the sale of our 1.125% convertible senior notes due December 15, 2018, were approximately$593.9 million; we also received net proceeds of $89.2 million related to the exercise of the underwriters' over-allotment option in January 2014. From timeto time, we repurchase and retire outstanding notes. During 2014, we repurchased and retired an aggregate of $150.0 million face amount of the outstandingnotes for $131.3 million. The notes are convertible into cash, our Class A shares or a combination of cash and Class A shares, at our election, under certaincircumstances, based on an initial conversion rate of 19.44 Class A shares per $1,000 principal amount of notes (which represents an initial conversion priceof approximately $51.45 per share), subject to adjustment on the occurrence of certain events. A further description of the accounting treatment related to thenotes can be found in note 11 of our audited consolidated financial statements included elsewhere in this Annual Report. Those proceeds were received byour parent company, a Dutch holding company that generates no operating cash flow itself. Other than the proceeds from our convertible note offering, our principal source of liquidity has been cash flow generated from the operations of ourRussian subsidiaries. Under current Russian legislation, there are no restrictions on our ability to distribute dividends from our Russian operating subsidiariesto our parent other than a requirement that dividends be limited to the cumulative net profits of our Russian operating subsidiaries, calculated in accordancewith Russian accounting principles. The cumulative net profit of our Russian subsidiaries calculated in accordance with Russian accounting principlesdiffers from the cumulative net profit calculated in accordance with U.S. GAAP primarily due to the treatment of accrued expenses (such as rent, sales agencycommissions, unused vacation, deferred tax and bad debt reserves) and differences arising from the capitalization and depreciation of property andequipment. In addition, these dividends cannot result in negative net assets at our Russian subsidiaries or render them insolvent. Pursuant to applicableRussian statutory rules, the amount that our Russian operating subsidiary would be permitted to pay as a dividend to our parent company as of December 31,2014 was approximately RUR 53,980 million ($959.5 million). We are required to pay 5% withholding tax on all dividends paid from our Russian operating subsidiaries to our parent company. We did not provide fordividend withholding taxes on the unremitted earnings of our foreign subsidiaries in 2013 and earlier years because they were considered permanentlyreinvested outside of the Netherlands. Starting in 2014, we have began to accrue for a 5% dividend withholding tax on the portion of the current year profitof our principal Russian operating subsidiary that is considered not to be permanently reinvested in Russia. As of December 31, 2014, the cumulative amountof unremitted earnings upon which dividend withholding taxes have not been provided is approximately RUR 44,787 million ($796.1 million). We estimatethat the amount of the unrecognized deferred tax liability related to these earnings is approximately RUR 2,239 million ($39.48 million). See "Risk Factors—Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-Russia taxtreaty." We do not have any current plan to pay cash dividends on our shares in the near term.89 Table of Contents As of December 31, 2014, we had no outstanding indebtedness other than the convertible notes due 2018. We do not currently maintain any line ofcredit or other similar source of liquidity.Cash Flows In summary, our cash flows were: Cash provided by operating activities. Cash provided by operating activities consists of net income adjusted for certain non-cash items, includingdepreciation and amortization expense, share-based compensation expense, deferred tax benefit/expense, foreign exchange gains and losses, gain fromrepurchase of convertible notes and the effect of changes in working capital. Cash provided by operating activities increased by RUR 841 million from 2013 to 2014. This increase was primarily due to an increase of RUR3,546 million in net income, offset by a decrease of RUR 1,715 million in non-cash adjustments to net income and a decrease of RUR 990 million in cashprovided by changes in working capital. The change in adjustments for non-cash items was primarily due to fluctuations in foreign exchange gains of RUR6,414 million. Cash provided by working capital decreased between the periods primarily due to significant increases in prepaid expenses and other assets,principally arising from an increase in interest receivable accrued. From 2012 to 2013, cash provided by operating activities increased by RUR 3,176 million. This increase was primarily due to an increase of RUR5,251 million in net income, offset by a decrease of RUR 1,301 million in non-cash adjustments to net income, and a decrease of RUR 774 million in cashprovided by changes in working capital. The change in adjustments for non-cash items was primarily due to gain of RUR 1,903 million from the sale ofequity securities, reflecting our sale of a 75% (less one ruble) interest in Yandex.Money in July 2013. We believe that our existing cash, cash equivalents and cash generated from operations will be sufficient to satisfy our currently anticipated cashrequirements through at least the next 12 months. To the extent that our cash, cash equivalents and cash from operating activities are insufficient to fund ourfuture activities, we may be required to raise additional funds through equity or debt financings, including bank credit arrangements. Additional financingmay not be available on terms favorable to us or at all.Cash used in investing activities. Cash used in investing activities in 2014 increased by RUR 27,879 million compared to 2013 as a result of an increase of investments in term deposits(net of proceeds) of RUR 9,763 million, increases in capital expenditures of RUR 4,743 million and of investments in debt securities of RUR 2,546 million,offset by decreases in proceeds from maturities of debt securities of RUR 4,394 million, in proceeds from sale of non-marketable equity securities of RUR1,903 million, in the amount of cash paid for the acquisition of new businesses of RUR 3,922 million, and cash placed in escrow of RUR 656 million relatedto contingent compensation payable to the sellers of Auto.ru and Kitlocate. Cash paid for acquisitions of businesses in 2014, net of cash acquired, primarilyconsists of cash paid for Auto.Ru in August 2014. Investments in debt securities consist of cash paid for Russian corporate bonds and Russian governmentbonds.90 Year ended December 31, 2012 2013 2014 (in millions of RUR) Net cash provided by operating activities 11,529 14,705 15,546 Net cash used in investing activities (10,190) (710) (28,589)Net cash provided by/(used in) financing activities 361 11,461 (11,707)Effect of exchange rate changes on cash (205) 513 9,001 Table of Contents Cash used in investing activities in 2013 decreased by RUR 9,480 million compared to 2012 as a result of increases in RUR 3,448 million in proceedsfrom maturing debt securities and RUR 1,849 million in proceeds from the sale of non-marketable equity securities, and by a decrease of investments in termdeposits (net of proceeds) of RUR 7,913 million, partly offset by RUR 2,438 million paid for the acquisition of KinoPoisk LLC. Our total capital expenditures were RUR 9,679 million in 2014 and RUR 4,936 million in 2013. Our capital expenditures have historically consistedprimarily of the purchase of servers and networking equipment. We also incurred significant capital expenditures in 2013 and 2014 related to theconstruction of one of our larger data centers. To manage enhancements in our search technology, expected increases in internet traffic, advertisingtransactions and new services, and to support our overall business expansion, we will continue to invest heavily in data center operations, technology,corporate facilities and information technology infrastructure in 2015 and thereafter. Moreover, we may spend a significant amount of cash on acquisitionsand licensing transactions from time to time.Cash used in/provided by financing activities. For 2014, cash outflow from financing activities was RUR 11,707 million, reflecting RUR 8,423 million used to fund our open market share repurchaseprogram and RUR 6,414 million to repurchase our outstanding convertible notes, (partly offset by RUR 2,981 of proceeds from the additional issuance of ouroutstanding convertible notes in January 2014), RUR 42 million used for the payment of convertible debt issuance costs along with proceeds of RUR191 million from share option exercises. In 2013, financing activities provided RUR 11,461 million in cash, reflecting RUR 19,719 million in proceeds from the issuance of our convertible notesand RUR 439 million in proceeds from share option exercises, offset by RUR 8,518 million used to fund our open market share repurchase program and RUR179 million paid for convertible debt issuance costs.Off-Balance Sheet Items We do not currently engage in off-balance sheet financing arrangements, and do not have any interest in entities referred to as variable interest entities,which include special purposes entities and other structured finance entities.Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2014: The table above presents our long-term rent obligations for our office and data center facilities, contractual purchase obligations related to data centeroperations and facility build-outs, as well as other purchase obligations primarily related to fixed utilities fees, technology licenses and other services91 Payments due by period Total Through2015 2016through2017 2018through2019 Thereafter (in millions of RUR) Long-term principal debt obligations 30,380 — — 30,380 — Interest payments 1,368 342 684 342 — Long-term operating lease obligations 25,353 4,056 7,860 8,344 5,093 Data centers related purchase obligations 2,405 2,357 48 — — Other purchase obligations 7,096 2,025 2,188 1,635 1,248 Payments related to business acquisitions 1,200 248 558 394 — Total contractual obligations 67,802 9,028 11,338 41,095 6,341 Table of Contentsand obligations related to repayment of our convertible notes due 2018. For agreements denominated in U.S. dollars, the amounts shown in the table aboveare based on the U.S. dollar/Russian ruble exchange rate prevailing on December 31, 2014. All amounts shown include value added tax.Critical Accounting Policies, Estimates and Assumptions Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements forthe years ended December 31, 2012, 2013 and 2014, included elsewhere in this Annual Report. The preparation of these consolidated financial statementsrequires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty.We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results ofwhich form the basis of making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are notreadily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe our criticalaccounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements are as follows:Share-Based Compensation Expense We estimate the fair value of share options and share appreciation rights (together, "Share-Based Awards") that are expected to vest using the Black-Scholes-Merton (BSM) pricing model and recognize the fair value ratably over the requisite service period using the straight-line method. We used thefollowing assumptions in our option-pricing model when valuing Share-Based Awards: To determine the expected option term, we use the "simplified method" as allowed under the SEC's accounting guidance, which represents the weighted-average period during which our awards are expected to be outstanding. With respect to price volatility, for 2012 and 2013 grants we used historical volatility of our publicly reported share price, after December 2013 we usefuture volatility of our share prices implied by our convertible debt prices cross-checked with the historical volatility of our publicly reported share price. We base the risk-free interest rate on the U.S. Treasury yield curve in effect at the grant date. We did not declare any dividends with respect to 2012, 2013 or 2014 and do not have any plans to pay dividends in the near term. We therefore use anexpected dividend yield of zero in our option pricing model for awards granted in the years ended December 31, 2012, 2013 and 2014. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest, taking into account estimatedforfeitures. U.S. GAAP requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ fromthose estimates. We calculate the forfeiture rate by reference to our historical employee turnover rate. If our actual forfeiture rate is materially different fromthe estimate, share-based compensation expense could be materially lower than what has been recorded.92 Year ended December 31, 2012 2013 2014 Expected life of the awards (years) 5.51 - 7.02 5.44 - 7.04 5.52 - 7.04 Expected annual volatility 54% 49% 38%Risk-free interest rate 0.78% 1.77% 1.85%Expected dividend yield — — — Table of ContentsTax Provisions Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. FASB authoritative guidanceon accounting for uncertainty in income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluatethe tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustainedon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is morethan 50% likely of being realized upon settlement. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matterswill not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate.To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes inthe period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that areconsidered appropriate, as well as the related net interest. Our actual Russian taxes may be in excess of the estimated amount expensed to date and accrued asof December 31, 2014, due to ambiguities in, and the evolution of, Russian tax legislation, varying approaches by regional and local tax inspectors, andinconsistent rulings on technical matters at the judicial level. See "Risk Factors—Risks Related to Doing Business and Investing in Russia and the OtherCountries in which We Operate—Changes in the Russian tax system or unpredictable or unforeseen application of existing rules may materially adverselyaffect our business, financial condition and result of operations." In addition, significant management judgment is required in determining whether deferred tax assets will be realized. A valuation allowance isrecognized to reduce deferred tax assets to amounts that are more likely than not to ultimately be utilized based on our ability to generate sufficient futuretaxable income. If actual events differ from management's estimates, or to the extent that these estimates are adjusted in the future, any changes in thevaluation allowance could materially impact our consolidated financial statements.Recognition and Impairment of Goodwill and Intangible Assets The FASB authoritative guidance requires us to recognize our share in the assets of businesses acquired and respective liabilities assumed based on theirfair values. Our estimates of the fair value of the identified intangible assets of businesses acquired are based on our expectations of the future results ofoperations of such businesses. The fair value assigned to identifiable intangible assets acquired is supported by valuations that involve the use of a largenumber of estimates and assumptions provided by management. We assess the carrying value of goodwill arising from business combinations on an annual basis, or more frequently if events or changes in circumstancesindicate that such carrying value may not be recoverable. Other than our annual review, factors we consider important that could trigger an impairmentreview include under-performance of our reporting units compared with our internal budgets or changes in projected results, changes in the manner ofutilization of the asset, and negative market conditions or economic trends. We determine whether impairment has occurred by assigning goodwill to thereporting unit identified in accordance with the authoritative guidance, and comparing the carrying amount of the reporting unit to the fair value of thereporting unit. Therefore, our judgment as to the future prospects of our business has a significant impact on our results and financial condition. If these futureprospects do not materialize as expected or there is a future adverse change in market conditions, we may be unable to recover the carrying amount of anasset, resulting in future impairment losses.93 Table of ContentsRecently Adopted Accounting Pronouncements Effective January 1, 2014, we adopted the Financial Accounting Standards Board ("FASB") accounting standards update on presentation of anunrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The adoption of this update did nothave a significant impact on our consolidated financial position, results of operations, cash flows or disclosures. Effective January 1, 2014, we adopted the FASB accounting standards update on parent's accounting for the cumulative translation adjustment uponderecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The adoption of these amendments didnot have a material impact on our consolidated balance sheet or results of operations. Effective January 1, 2014, we adopted accounting standards updates on presentation of an unrecognized tax benefit when a net operating losscarryforward, a similar tax loss, or a tax credit carryforward exists. The amendments provide guidance on the financial statement presentation of anunrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Effective January 1, 2014, we adopted FASB accounting standards update on parent's accounting for the cumulative translation adjustment uponderecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The adoption of these amendments didnot have a material impact on our consolidated balance sheet or results of operations.Quantitative and Qualitative Disclosures about Market RiskForeign Currency Exchange Risk The functional currency of our Russian operating subsidiaries, which account for the significant majority of our operations, is the Russian ruble.Therefore, our reported results of operations are impacted by fluctuations in exchange rates to the extent that we recognize foreign exchange gains and losseson monetary assets and liabilities denominated in currencies other than the ruble, primarily the U.S. dollar. Total U.S. dollar denominated cash, cashequivalents and term deposits held in Russia amounted to RUR 15,523 million and RUR 6,919 million as of December 31, 2014 and 2013, respectively. Ifthe U.S. dollar had been stronger/weaker by 15% relative to the value of the Russian ruble as of December 31, we would have recognized additional foreignexchange gains/losses before tax of RUR 2,226 million and RUR 972 million in 2014 and 2013, respectively. Furthermore, the revenues and expenses of our Russian operating subsidiaries are primarily denominated in Russian rubles. However, as is customary inthe Russian real estate market, the majority of our rent expenses, including the lease for our Moscow headquarters, is denominated in U.S. dollars.Additionally, a major portion of our capital expenditures, primarily servers, networking and engineering equipment imported by Russian suppliers, can alsobe materially affected by changes in the dollar-ruble and euro-ruble exchange rate. In the event of a material appreciation of the U.S. dollar against the ruble,such as that which occured in 2014, the ruble equivalent of these U.S. dollar-denominated expenditures increase and negatively impact our net income andcash flows. In 2011, we entered into two seven-year lease agreements for an aggregate of approximately 12,000 additional square meters of office space located inour headquarters complex in Moscow. In April 2014, we further extended the existing rent agreements to 2021. The lease of our Moscow headquarters entailsoutstanding commitments of approximately RUR 24,000 million as of December 31, 2014. The rent under these leases is denominated in U.S. dollars, butpayable in rubles at the then-current exchange rate quoted by the Central Bank of Russia. The leases protect the landlord against depreciation of the U.S.dollar against the ruble, although we are not protected from any potential appreciation. The landlord's protection from U.S. dollar depreciation represents an94 Table of Contentsembedded derivative that must be bifurcated and accounted for separately under U.S. GAAP. At the end of each period, we re-measure the fair value of thisembedded derivative and record any change in fair value as foreign exchange gains or losses in the income statement. We estimate the fair value of thisderivative instrument using a model that is sensitive to changes in the U.S. dollar to Russian ruble exchange rate. If the U.S. dollar had been weaker by 15%relative to the value of the Russian ruble as of December 31, 2014, we would have recognized additional foreign exchange losses before tax of RUR 5 millionin 2014. If the U.S. dollar had been stronger by 15% relative to the value of the Russian ruble as of December 31, 2014, we would have recognized additionalforeign exchange gains before tax of RUR 6 million in 2014. The functional currency of our Dutch parent company and our Dutch and U.S. subsidiaries is the U.S. dollar. The functional currency of our subsidiariesincorporated in other countries is the respective local currency. The financial statements of these non-Russian entities have been translated into rubles usingthe current rate method, where balance sheet items are translated into rubles at the period-end exchange rate and revenue and expenses are translated using aweighted average exchange rate for the relevant period. The resulting translation gains and losses for the years ended December 31, 2012, 2013 and 2014 areincluded as a foreign translation adjustment recorded as part of other comprehensive income on our consolidated balance sheets. U.S. dollar cash, cashequivalents and term deposits comprise the largest portion of our net assets in the Netherlands. Total U.S. dollar denominated cash, cash equivalents and termdeposits held in the Netherlands amounted to RUR 9,406 million and RUR 22,143 million as of December 31, 2014 and 2013, respectively. If the U.S. dollarhad been stronger/weaker by 15% relative to the value of the Russian ruble as of December 31, we would have recognized additional other comprehensivegains/losses of RUR 1,926 million and RUR 1,153 million in 2014 and 2013, respectively. Subsequent to December 31, 2014, the Russian ruble remained highly volatile against foreign currencies, including the U.S. dollar. The currencyexchange rate as of December 31, 2014 was RUR 56.2584 to $1.00 and, during the period from December 31, 2014 to April 28, 2015, the currency exchangerate of the Russian ruble appreciated to RUR 51.4690 to $1.00. The lowest rate reached during this period was RUR 69.6640 to $1.00 as of February 3, 2015.The highest rate reached during this period was RUR 49.6749 to $1.00 as of April 17, 2015.Interest Rate Risk We had cash, cash equivalents and term deposits of RUR 49,171 million and held debt securities of RUR 3,124 million as of December 31, 2014. We donot believe that we have any material exposure to changes in the fair value of our cash, cash equivalents, term deposits and debt securities balances as a resultof changes in interest rates. We do not enter into investments for trading or speculative purposes. Declines in interest rates, however, will reduce futureinvestment income. In December 2013, we issued and sold $600.0 million in aggregate principal amount of 1.125% convertible senior notes due December 15, 2018. InJanuary 2014, we issued and sold an additional $90.0 million in aggregate principal amount of 1.125% convertible senior notes due December 15, 2018.During 2014, we repurchased and retired $150 million in aggregate principal amount of the outstanding notes. We carry the convertible notes at face valueless unamortized discount on our balance sheet. The fair value of the notes changes when the market price of our shares or interest rates fluctuate.95 Table of Contents Item 6. Directors, Senior Management and Employees. The following table sets forth certain information with respect to each of our executive officers and directors and their respective age and position as ofthe date of this Annual Report: Mr. Fenaughty has been a non-executive director since 2000 and became the Chairman of our board of directors in July 2008. Mr. Fenaughty is a co-founder, chairman of the board of directors and chief executive officer of InfiNet Wireless, a provider of wireless networking technology in Russia, as well asa co-founder and chairman of the board of the Center of Telephony Integration, a supplier of IP telephony systems. From 1993 to 2003, Mr. Fenaughty was adirector of CompTek International. From 1965 to 1993, he served as president and chief executive officer of Information International. Prior to that,Mr. Fenaughty was vice president and general manager of the Western Division of Computer Control. Mr. Fenaughty received a bachelor's degree inengineering from Columbia University in 1946 and a master's degree in electrical engineering in 1947. Mr. Volozh is the principal founder of Yandex and has been our Chief Executive Officer and a director since 2000. A serial entrepreneur with abackground in computer science, Mr. Volozh co-founded several successful IT enterprises, including InfiNet Wireless, a Russian provider of wirelessnetworking technology, and CompTek International, one of the largest distributors of network and telecom equipment in Russia. In 2000, Arkady left hisposition as CEO at CompTek International to become the CEO of Yandex. Mr. Volozh started working on search in 1989, which led to him establishingArkadia Company in 1990, a company developing search software. His early achievements in this field include the development of electronic search for usein patents, Russian classical literature and the Bible. Mr. Volozh holds a degree in applied mathematics from the Gubkin Institute of Oil and Gas. Mr. Boynton has been a non-executive director since 2000. Mr. Boynton is the president of Firehouse Capital Inc., a privately held investment companywith investments in a variety of early stage companies. He also serves on the boards of several non-profit organizations. Mr. Boynton served as a founder andmanaging director of Wilson Alan LLC from 2001 through 2006, as vice president of corporate strategy and development at Forrester Research from 1997 to2001, as a strategy consultant with Mercer Management Consulting from 1995 to 1997, and as co-founder and president of CompTek International from1990 to 1995. Mr. Boynton graduated from Harvard College. Ms. Dyson has been a non-executive director since 2006. Ms. Dyson is an active investor and board member in a variety of IT, health care and aerospacestart-ups, and also previously sat on the board of WPP Group, a global communications company. She started her career as a fact-checker for ForbesMagazine, and then spent five years as a security analyst on Wall Street. At New Court Securities,96Name Age Date ofExpiration ofCurrent Termof Office Director orExecutiveOfficerSince TitleAlfred Fenaughty 88 2017 2000 Chairman and Non-Executive DirectorArkady Volozh 51 2017 2000 Executive Director and Chief Executive OfficerJohn Boynton 49 2015 2000 Non-Executive DirectorEsther Dyson 63 2015 2006 Non-Executive DirectorElena Ivashentseva 48 2017 2000 Non-Executive DirectorRogier Rijnja 52 2016 2013 Non-Executive DirectorCharles Ryan 47 2016 2011 Non-Executive DirectorAlexander Voloshin 58 2016 2010 Non-Executive DirectorHerman Gref 51 2017 2014 Non-Executive DirectorAlexander Shulgin 37 N/A 2010 Chief Operating OfficerGregory Abovsky 38 N/A 2014 Chief Financial Officer Table of ContentsMs. Dyson comprised the sell-side research department, and worked on the initial public offering of Federal Express, among others. At Oppenheimer & Co.,she followed the nascent software and personal computer markets. From 1982 to 2004, as the owner of EDventure Holdings, she edited the newsletter Release1.0 and ran the annual PC Forum conference. She sold EDventure to CNET in 2004, and reclaimed the name when she left CNET at the beginning of 2007.Her Russian interests have included advisory board seats with both IBS Group and SUP/Live Journal, and investments in the technology companiesAlterGeo, TerraLink, Epam and UCMS. In the U.S., she is on the boards of 23andMe, Meetup, and others. She is on the boards of listed companies WPP Groupand Luxoft, based in Moscow and Kiev. She was an early investor in Flickr and del.icio.us (sold to Yahoo!), Medstory and Powerset (sold to Microsoft),Brightmail (sold to Symantec), and Postini (sold to Google), among others. She is the author of "Release 2.0: A design for living in the digital age" (1997),which has been translated into 18 languages. She has a B.A. in economics from Harvard University. Ms. Ivashentseva has been a non-executive director since 2000. Ms. Ivashentseva is a senior partner at Baring Vostok Capital Partners, a Russian privateequity firm. Baring Vostok structured and led the initial investment in Yandex in 2000 by Internet Search Investments Limited (the parent of ru-Net B.V.), inwhich a Baring Vostok fund was the founder and Baring Vostok funds were, together, the largest shareholder. Since 2000, Ms. Ivashentseva has beenresponsible for the investment in Yandex on behalf of Internet Search Investments Limited. She is also a member of the board of Avito, Centre for FinancialTechnologies, Enforta, ER-Telecom, Family Doctor, InfiNet Wireless Ltd., Ivi.ru and Ozon and was previously a member of the board of directors of CTCMedia, Inc., a leading NASDAQ listed Russian television broadcaster, and other portfolio companies of Baring Vostok funds. From 1994 to 1998,Ms. Ivashentseva was a director of EPIC Russia, where she led telecom and media investments of the Sector Capital Fund. Ms. Ivashentseva received amaster's degree in finance and accounting from the London School of Economics and a diploma with honors in economics from Novosibirsk University. Sheis a charterholder of the CFA Institute. Mr. Rijnja has been a non-executive director since May 2013. He is an independent consultant, and served as Senior Vice President of Human Resourcesand a member of the executive committee at D.E Master Blenders, a Dutch public company listed on the Amsterdam Stock Exchange, from 2011 to February2014. Prior to joining D.E Master Blenders, Mr. Rijnja served as head of the human resources departments at several international companies, includingMaxeda (2008 to 2011), Numico N.V. (2004 to 2008) and Amazon.com (2002 to 2004). He was previously the director of global management development atReckitt Benckiser PLC from 1998 to 2002, and a human resources manager for Nike Europe from 1996 to 1998. Mr. Rijnja held several positions at Applebetween 1989 and 1996 in The Netherlands and the United States. Mr. Rijnja has a degree in law studies from Leiden University in The Netherlands Mr. Ryan has been a non-executive director since May 2011. A finance professional with 25 years of experience in both the Russian and internationalmarkets, Mr. Ryan co-founded United Financial Group (UFG) and became its Chairman and CEO in 1994. In 1998, Mr. Ryan initiated the New TechnologyGroup within UFG Asset Management, which sponsored an early stage technology investment in ru-Net Holdings whose investments include Yandex. In2006, Deutsche Bank acquired 100% of UFG's investment banking business, and Mr. Ryan was appointed chief country officer and CEO of Deutsche BankGroup in Russia and remained in that position until the end of 2008, when he became chairman of UFG Asset Management. From 2008 through the end of2010, Mr. Ryan was a consultant for Deutsche Bank. Prior to founding UFG, Mr. Ryan worked as a financial analyst with CS First Boston from 1989 to 1991and as an associate and principal banker with the European Bank for Reconstruction and Development in London from 1991 to 1994. Mr. Ryan has a degreein Government from Harvard University. Mr. Voloshin has been a non-executive director of Yandex since August 2010 after serving as an advisor to the company for two years. Mr. Voloshinserves as the Chairman of the Board of Directors97 Table of Contentsof Uralkali and of Freight One. Prior to joining our Board of Directors, Mr. Voloshin served as Chairman of the Board of MMC Norilsk Nickel from 2008 to2010 and as Chairman of the Board of Directors of RAO "UES of Russia" from 1999 to 2008. From 1999 to 2003, Mr. Voloshin headed the RussianPresidential Administration. Prior to becoming Chief of Staff of the Russian President, he worked as Deputy Chief of Staff from 1998 to 1999, and as Assistantto the Chief of Staff from 1997 to 1998. He graduated from the Moscow Institute of Transport Engineers in 1978 and holds a degree in economics from theAll-Russia Foreign Trade Academy. Herman Gref has been a non-executive director since May 2014. Mr. Gref has served since 2007 as the Chief Executive Officer and Chairman of theExecutive Board of Sberbank of Russia, one of the largest commercial banks in Russia. From 2000 to 2007, Mr. Gref served as the Minister for EconomicDevelopment of the Russian Federation and has previously served in a number of government positions at the federal and regional levels in Russia. Mr. Grefholds a degree in law from Omsk State University, a Ph.D. in law from St Petersburg State University and a Ph.D. in economics. Mr. Gref holds a Citation andCertificate of Honor from the President of the Russian Federation, the Order for Distinguished Service of Grade IV and the Stolypin Medal. Alexander Shulgin was appointed Chief Operating Officer in 2014. Mr. Shulgin joined Yandex as Chief Financial Officer in May 2010. A financeprofessional with 13 years of experience in the FMCG industry, Mr. Shulgin worked in different finance positions in Coca-Cola Hellenic from 1997 until2007. In 2007, he was appointed country chief financial officer of Coca-Cola Hellenic Russia. Mr. Shulgin has a degree in Management from Rostov-on-DonState University. Gregory Abovsky was appointed Chief Financial Officer in 2014. Mr. Abovsky joined Yandex as Vice President of Investor Relations in January 2013,taking on the additional role of Vice President of Corporate Development in October 2013. Mr. Abovsky began his career in the investment banking divisionof Morgan Stanley, and has over 14 years of experience in a variety of finance and investment management roles in the media and technology sectors.Mr. Abovsky holds a B.A. in Business Economics and Russian Literature from Brown University and an M.B.A. with High Distinction from Harvard BusinessSchool.Compensation and Share Ownership of Executive Officers and Directors. The aggregate cash compensation paid or accrued in 2014 for members of our senior management (a total of 23 persons), as a group, was RUR176 million ($3.1 million). In May 2011, we granted each of our non-executive directors an option to acquire 28,000 Class A shares at the initial public offering price of $25.00 pershare, effective on the closing of our initial public offering. Such options vest over a four-year period. In May 2013, we granted to a new non- executivedirector an option to acquire 28,000 Class A shares at a price of $27.74 per share. In May 2014, we granted a new non- executive director an option to acquire28,000 Class A shares at a price $33.09 per share. For information on share ownership and options held by our directors and senior management, please see "Major Shareholders and Related PartyTransactions".Corporate Governance We have an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each ofthese committees.Audit Committee Our audit committee consists of Messrs. Ryan (chairperson) and Boynton and Ms. Dyson. Each member satisfies the "independence" requirements of theNASDAQ listing standards, and Mr. Ryan98 Table of Contentsqualifies as an "audit committee financial expert," as defined in Item 16A of Form 20-F and as determined by our board of directors. The audit committeeoversees our accounting and financial reporting processes and the audits of our consolidated financial statements. The audit committee is responsible for,among other things:•making recommendations to our board of directors regarding the appointment by the shareholders of our independent auditors; •overseeing the work of the independent auditors, including resolving disagreements between management and the independent auditorsrelating to financial reporting; •pre-approving all audit and non-audit services permitted to be performed by the independent auditors; •reviewing the independence and quality control procedures of the independent auditors; •discussing material off-balance sheet transactions, arrangements and obligations with management and the independent auditors; •reviewing and approving all proposed related-party transactions; •discussing the annual audited consolidated and statutory financial statements with management; •annually reviewing and reassessing the adequacy of our audit committee charter; •meeting separately with the independent auditors to discuss critical accounting policies, recommendations on internal controls, the auditor'sengagement letter and independence letter and other material written communications between the independent auditors and the management;and •attending to such other matters as are specifically delegated to our audit committee by our board of directors from time to time.Compensation Committee Our compensation committee consists of Messrs. Boynton (chairperson), Fenaughty and Rijnja and Ms. Ivashentseva. Each member satisfies the"independence" requirements of the NASDAQ listing standards. The compensation committee assists the board of directors in reviewing and approving orrecommending our compensation structure, including all forms of compensation relating to our directors and management. Members of our management maynot be present at any committee meeting while the compensation of our chief executive officer is deliberated. Subject to the terms of the remuneration policyapproved by our general meeting of shareholders from time to time, as required by Dutch law, the compensation committee is responsible for, among otherthings:•reviewing and making recommendations to the board of directors with respect to compensation of our executive and non-executive directors; •reviewing and approving the compensation, including equity compensation, change-of-control benefits and severance arrangements, of ourchief financial officer and such other members of our management as it deems appropriate; •overseeing the evaluation of our management; •reviewing periodically and making recommendations to our board of directors with respect to any incentive compensation and equity plans,programs or similar arrangements; •exercising the rights of our board of directors under any equity plans, except for the right to amend any such plans unless otherwise expresslyauthorized to do so; and99 Table of Contents•attending to such other matters as are specifically delegated to our compensation committee by our board of directors from time to time.Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Messrs. Boynton (chairperson) and Fenaughty and Ms. Ivashentseva. Each membersatisfies the "independence" requirements of the NASDAQ listing standards. The nominating and corporate governance committee assists the board ofdirectors in selecting individuals qualified to become our directors and in determining the composition of the board of directors and its committees. Thenominating and corporate governance committee is responsible for, among other things:•recommending to the board of directors persons to be nominated for election or re-election as directors at any meeting of the shareholders; •overseeing the board of directors' annual review of its own performance and the performance of its committees; and •considering, preparing and recommending to the board of directors a set of corporate governance guidelines applicable to the company.Employment Agreements Substantially all of our employees are employed by our operating subsidiaries. Our employment agreements generally contain the minimum statutorynotice periods required under Russian law. The employment agreements between our subsidiaries and certain senior managers and other employees containnon-competition and non-solicitation provisions, although we understand that such provisions are generally unenforceable under Russian law.Employees The following table indicates the composition of our workforce as of December 31 each year indicated: We also typically employ several hundred contract workers on a part-time basis, and the numbers of such contract workers generally varies in line withthe numbers of full-time staff. Our employees are not represented by any collective bargaining agreements and we have never experienced a work stoppage. We believe our employeerelations are good.Employee Plans Our Fourth Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan") provides for the grant of equity awards in the form of share options,share appreciation rights, restricted shares and100 2011 2012 2013 2014 Russia 3,062 3,415 4,312 5,020 Other 250 346 590 596 Total 3,312 3,761 4,902 5,616 2011 2012 2013 2014 Product development 1,842 2,027 2,924 3,329 Sales, general and administration 1,145 1,354 1,591 1,826 Cost of sales 325 380 387 461 Total 3,312 3,761 4,902 5,616 Table of Contentsrestricted share units (or so-called "deferred shares"). The total number of shares available for issuance under the plan is equal to 10% of the aggregate numberof Class A and Class B shares outstanding from time to time. Plan administration. Our board of directors or its compensation committee administers our 2007 Plan. Although our 2007 Plan sets forth certain termsand conditions of our equity awards, our board of directors or its compensation committee determines the provisions and terms and conditions of each grant.These include, among other things, the vesting schedule, repurchase provisions, forfeiture provisions, and form of payment upon exercise. Eligibility. We may grant equity awards to employees and directors of and consultants to our company and its subsidiaries. Exercise price and term of equity awards. The exercise price of options or measurement price of share appreciation rights awards is the closing price perClass A share on the NASDAQ Global Select Market on the grant date. Restricted share unit awards have no exercise or measurement price. Equity awards aregenerally exercisable up until the tenth anniversary of the grant date so long as the grantee's relationship with us has not terminated. Vesting schedule. The notice of grant specifies the vesting schedule. Awards generally vest over a four-year period, with 4/16ths vesting on the firstanniversary of grant and an additional 1/16th vesting each quarter thereafter. When a grantee's employment or service is terminated, the grantee may generallyexercise his or her options that have vested as of the termination date within ninety days of termination or as determined by our plan administrator. Class A and Class B Shares. Outstanding options granted prior to October 2008 may be exercised, pursuant to their terms and the terms of the 2007Plan, as follows:•In the event that an optionee intends to exercise an option and immediately sell the shares acquired, we will issue Class A shares upon suchexercise. •In the event that an optionee intends to exercise an option and hold the shares acquired for some period of time, we will issue Class B sharesupon such exercise. Such Class B shares will be subject to the transfer and conversion provisions applicable to all Class B shares.Equity awards granted since October 2008 are in respect of Class A shares only, in accordance with their terms and the terms of the 2007 Plan. Amendment and Termination. Our board of directors may at any time amend, suspend or terminate our 2007 Plan. Prior to any such amendment,suspension or termination, our board of directors must first make a determination that share options already granted will not be adversely affected. Unlessterminated earlier, our 2007 Plan will continue in effect until October 2017. Our board of directors adopted amendments to the 2007 plan in November 2011and again in February 2012. Equity Award Exchange. In April 2015, we offered certain of our employees the opportunity to exchange outstanding share appreciation rights awardsfor new restricted share unit awards. As a result of recent economic and market conditions, the value of our Class A shares has fluctuated significantly inrecent periods and we believed that restricted share unit awards would provide a better incentive for our employees in these conditions. Each eligibleemployee was therefore given the opportunity to exchange outstanding share appreciation rights awards for restricted share unit awards on a two-for-onebasis (two share appreciation rights for one restricted share unit), subject to longer vesting and exercisability terms. In particular, such replacement awardswill vest over a five-year period, compared with the four-year vesting term of the original share appreciation rights awards. A total of 14 employees, includingour Chief Operating Officer and Chief Financial Officer, participated in the offer, exchanging a total of 1,663,750 share appreciation rights for a total of831,875 restricted share units.101 Table of Contents Item 7. Major Shareholders and Related Party Transactions. The following table contains information concerning each shareholder known by us to beneficially own more than five percent of each class of ouroutstanding ordinary shares. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includesvoting or investment power with respect to our shares. The number of shares outstanding used in calculating the percentage for each listed shareholder includes the shares underlying options held by suchshareholder that are exercisable within 60 days of March 14, 2015. Percentage of beneficial ownership is based on 256,919,259 Class A shares and60,860,605 Class B shares outstanding as of March 14, 2015. All holders of our ordinary shares, including those shareholders listed below, have the samevoting rights with respect to such shares. Class A shares have one vote per share, and Class B shares have 10 votes per share.102 Shares Beneficially Owned as at March 14, 2015 Class A Shares Class B Shares Total Percentage Name of Beneficial Owner Number ofShares % Number ofShares % By VotingPower(1) By Number ofShares Directors and Senior Management: Arkady Volozh 0 — 34,459,684 56.62% 39.81% 10.84%Alfred Fenaughty(2) 26,250 * 1,400,000 2.30% 1.62% * John Boynton(3) 724,850 * 0 — * * Esther Dyson(4) 186,250 * 0 — * * Elena Ivashentseva(5) 1,682,468 * 13,297,636 21.85% 15.56% 4.71%Rogier Rijnja(6) 15,250 * 0 — * * Charles Ryan(7) 456,142 * 0 — * * Alexander Voloshin(8) 76,250 * 0 — * * Herman Gref(9) 0 — 0 — — — Alexander Shulgin(10) 142,000 * 0 — * * Gregory Abovsky(11) 12,878 * 0 — — * All current directors and senior managementas a group (11 persons)(12) 3,322,338 1.29% 49,157,320 80.77% 57.18% 16.51%Principal Shareholders: Baring Vostok Private Equity Funds(13) 1,596,765 * 13,297,636 21.85% 15.55% 4.69%Capital Research Global Investors(14) 21,269,000 8.28% 0 — 2.46% 6.69%Comgest Global Investors S.A.S(15) 12,585,487 4.90% 0 — 1.45% 3.96%EuroPacific Growth Fund(16) 16,542,400 6.44% 0 — 1.91% 5.21%Oppenheimer Funds, Inc.(17) 36,481,537 14.20% 0 — 4.21% 11.48%Vladimir Ivanov 7,495,000 2.92% 5,318,884 8.74% 7.01% 4.03%Total shares held by directors, managementand 5% holders 99,292,527 38.65% 54,476,204 89.51% 74.41% 48.39%*Represents beneficial ownership of less than one percent of such class. (1)Percentage of total voting power represents voting power with respect to all of our Class A and Class B shares, voting together as asingle class. Each holder of Class B shares is entitled to ten votes per Class B share and each holder of Class A shares is entitled to onevote per Class A share on all matters submitted to our shareholders for a vote. The Class A shares and Class B shares vote together as asingle class on all matters submitted to a vote of our shareholders, except Table of Contents103as may otherwise be required by Dutch law or our articles of association. Each Class B share is convertible at any time by the holderinto one Class A share and one Class C share.(2)Includes 1,400,000 Class B shares held by the Alfred and Riqueza Fenaughty Revocable Living Trust, the beneficiaries of whichinclude Mr. Fenaughty or members of his family, and includes 26,250 Class A shares subject to an option that is currently exercisable.Excludes options to purchase 1,750 Class A shares that are not exercisable within 60 days after March 15, 2015. (3)Includes (a) 291,400 Class A shares held by trusts, the beneficiaries of which include Mr. Boynton or members of his family,(b) 325,000 Class A shares held by the John W. Boynton Trust of 2006, (c) 82,200 Class A shares held by The Diomedes Foundation, acharitable organization and (d) 26,250 Class A shares subject to an option that is currently exercisable. Other than in respect of theshares held by the John W. Boynton Trust of 2006, Mr. Boynton disclaims beneficial ownership of these shares except to the extent ofhis pecuniary interest therein. Excludes options to purchase 1,750 Class A shares that are not exercisable within 60 days afterMarch 15, 2015. (4)Includes 26,250 Class A shares subject to an option held by Ms. Dyson that is currently exercisable, and excludes options to purchase1,750 Class A shares that are not exercisable within 60 days after March 15, 2015. (5)Includes shares held by BC&B Holdings B.V. ("BC&B"). Includes 26,250 Class A shares subject to an option held by BC&B that iscurrently exercisable, and excludes options to purchase 1,750 Class A shares that are not exercisable within 60 days after March 15,2015. These options were granted to BC&B, which holds the options on behalf of the Baring Vostok Private Equity Funds.Ms. Ivashentseva is a senior partner of Baring Vostok Capital Partners Limited, a Cypriot limited company, which is a sub-adviser toBaring Vostok Capital Partners Limited, a limited liability company incorporated under the laws of and registered in Guernsey("BVCPL") which acts as the investment advisor with respect to the investment by Baring Vostok Private Equity Funds in BC&B. Seenote 13. Ms. Ivashentseva disclaims beneficial ownership of these shares except to the extent of her pecuniary interest therein. Alsoincludes 85,703 Class A shares held by Caldwell Associated, a company controlled by Ms. Ivashentseva. (6)Includes 12,250 Class A shares subject to an option that is currently exercisable and 3,000 Class A shares held directly by Mr. Rijnja,and excludes options to purchase 15,750 Class A shares that are not exercisable within 60 days after March 15, 2015. (7)Includes 454,392 Class A shares held by trusts, the beneficiaries of which include Mr. Ryan or members of his family and by Mr. Ryandirectly. Includes 26,250 Class A shares subject to an option that is currently exercisable, and excludes options to purchase 1,750Class A shares that are not exercisable within 60 days after March 15, 2015. (8)Includes 26,250 Class A shares subject to an option held by Mr. Voloshin that is currently exercisable, and excludes options topurchase 1,750 Class A shares that are not exercisable within 60 days after March 15, 2015. (9)Excludes options to purchase 28,000 Class A shares held by Mr. Gref that are not exercisable within 60 days after March 15, 2015, andexcludes our priority share, held by Sberbank. (10)Consists of 142,000 restricted share units held by Mr. Shulgin that are not exercisable within 60 days after March 15, 2015. (11)Consists of 12,878 restricted share units held by Mr. Abovsky that are not exercisable within 60 days after March 15, 2015 Table of ContentsHoldings by U.S. Shareholders As of March 14, 2015, there was one holder of record of Class A shares (Cede & Co., as nominee for DTC) and there were three holders of record ofClass B shares located in the United States, together holding in the aggregate approximately 99% and 2% of our outstanding Class A and B shares bynumber, respectively, representing in the aggregate approximately 31% of our outstanding shares by voting power.Related Party TransactionsShareholders Agreement Shareholders holding an aggregate of approximately 72 million Class A and Class B shares, representing approximately 66.97% of the voting power ofour outstanding shares, are parties to a shareholders agreement, the principal terms of which are as follows: Board composition. The parties have agreed to vote all of our shares held by them in favor of electing or re-electing those persons nominated by ourboard of directors for election or re-election as a director at any general meeting of our shareholders. Compliance with foreign ownership laws. The parties have agreed to comply with any applicable laws from time to time in effect that regulate theowners of Yandex by non-Russian parties.104(12)Includes options to purchase 200,150 shares that are exercisable within 60 days after March 15, 2015, and excludes restricted shareunits and options to purchase 181,128 shares that are not exercisable within 60 days after March 15, 2015. (13)Includes 13,297,636 Class B Shares. Includes 26,250 Class A shares that are subject to an option that is currently exercisable.Excludes options to purchase 1,750 Class A shares that are not exercisable within 60 days after March 15, 2015. BC&B Holdings B.V.("BC&B") is 100% owned by BC & B Coöperatief U.A., a cooperative association with exclusion of liability incorporated under thelaws of the Netherlands ("BC&B Coop"). 52.35% of the share capital of BC&B Coop is held by Chouet Nominees Limited ("CHNL"),23.89% of the share capital of BC&B Coop is held by Baring Vostok Nominees Limited ("BVNL"), 23.76% of the share capital ofBC&B Coop is held by Dehus Dolmen Nominees Limited ("DDNL"). Through their ownership of BC&B Coop, therefore, CHNL hasthe right to control the voting and disposition of 1,003,017 Class A shares and 6,961,378 Class B shares held by BC&B; BVNL hasthe right to control the voting and disposition of 381,431 Class A shares and and 3,176,497 Class B shares held by BC&B; and DDNLhas the right to control the voting and disposition of 379,420 Class A Shares and 3,159,761 Class B shares held by BC&B. (14)The number of shares reported is based solely on the Schedule 13G filed by Capital Research Global Investors on February 9, 2015.Capital Research Global Investors is a division of Capital Research and Management Company ("CRMC") and is deemed to be thebeneficial owner of the shares as a result of CRMC acting as investment adviser to various investment companies registered underSection 8 of the Investment Company Act of 1940. (15)The number of shares reported is based solely on the Schedule 13G filed by Comgest Global Investors S.A.S. on February 6, 2015. (16)The number of shares reported is based solely on the Schedule 13G filed by EuroPacific Growth Fund on February 9, 2015. (17)The number of shares reported is based solely on the Schedule 13G filed by Oppenheimer Funds, Inc. on February 10, 2015. Table of Contents Amendments to articles of association. The parties have agreed that they will vote against any proposal to amend the articles of association in such away as to eliminate:•our multiple class share structure, with differential voting rights; •the staggered three-year terms of our directors; •the provision that our directors may only be removed by a two-thirds majority of votes cast representing at least 50% of our outstanding sharecapital; •the authorized preference shares; •requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a voteupon a proposal by our board of directors; •the supermajority requirements for shareholder approval of certain significant corporate actions, including a legal merger or demerger of ourcompany or the amendment of our articles of association; •the right of our board of directors to approve the accumulation by a party, group of related parties or parties acting in concert of the legal orbeneficial ownership of 25% or more, in number or by voting power, of our outstanding Class A and Class B shares (taken together); or •the rights of the holder of the priority share. Term and Amendment. The shareholders agreement will remain in effect so long as any Class B shares remain outstanding. The agreement may beterminated and amended, and any provision thereof waived, with the prior written consent of parties to the agreement holding shares representing more than662/3% of the voting power of the outstanding share capital held by parties to the agreement. The agreement will terminate with respect to any particularshareholder upon its affirmative election if it no longer holds any Class B Shares, as a result of the transfer of all Class B shares held by it, or the voluntary ormandatory conversion of all Class B Shares held by it into Class A Shares.Registration Rights Agreement We are party to a registration rights agreement with our major shareholders that allows them to require us to register Class A shares held by them underthe U.S. Securities Act of 1933, as amended (the "Securities Act"), under certain circumstances. Demand registration rights. Shareholders party to the agreement together holding approximately 53 million Class A and Class B shares have the rightto require that we register their securities for sale. Certain other shareholders have the right to join in a demand registration. We have the right not to effect ademand registration (a) if we have already effected one demand registration, (b) if the aggregate price, net of underwriters' discounts or commissions, of allregistrable securities included in such registration is less than $7,500,000, (c) if the initiating shareholders propose to register securities that may beimmediately registered on Form F-3, or (d) in a jurisdiction where we would be required to qualify to do business or execute a general consent to service ofprocess in effecting such a registration. We have the right to defer filing of a registration statement for up to 120 days if our board of directors determines ingood faith that filing of a registration statement would be detrimental to us, but we cannot exercise such deferral right more than once in any 12-monthperiod. Piggyback registration rights. If we propose to file a registration statement for a public offering of our securities other than relating to an employeeshare option, share purchase or similar plan or pursuant to a merger, exchange offer, or similar transaction, then we must offer holders of registrable securitiesan opportunity to include in this registration all or any part of their registrable securities. We must use our best effort to cause the underwriters in anyunderwritten offering to permit the105 Table of Contentsshareholders who so requested to include their shares on the same terms and conditions as our securities to be registered. Form F-3 registration rights. When we are eligible to use Form F-3, one or more shareholders party to the agreement holding shares with an aggregatemarket value of at least $50,000,000 have the right to request that we file a registration statement on Form F-3. We are not obligated to file a registrationstatement on Form F-3 if (a) we have already effected two registrations on Form F-3 for holders of registrable securities during the 12-month period precedinga registration request, (b) the aggregate price, net of underwriters' commissions or discounts, of registrable securities included in such registration is less than$10 million, or (c) in a jurisdiction where we would be required to qualify to do business or execute a general consent to service of process in effecting such aregistration. We have the right to defer filing of a registration statement for up to 120 days if our board of directors determines in good faith that filing of aregistration statement would be detrimental to us, but we cannot exercise such deferral right more than once in any 12-month period. Expenses of registration. We will pay all expenses relating to any demand, piggyback or F-3 registration, other than underwriting commissions anddiscounts.Relationship with Sberbank Sberbank is a major financial institution and the largest savings bank in the Russian Federation. Approximately 51% of its voting shares are held by theCentral Bank of the Russian Federation.Priority Share In September 2009, we issued our priority share to Sberbank for its nominal value of €1.00. As the holder of our priority share, Sberbank has the right toapprove the accumulation by a party, group of related parties or parties acting in concert, of the legal or beneficial ownership of shares representing 25% ormore, in number or by voting power, of our outstanding Class A and Class B shares (taken together), if our board of directors has otherwise approved suchaccumulation of shares. In addition, any decision by our board of directors to sell, transfer or otherwise dispose of, directly and indirectly, all or substantiallyall of our assets to one or more third parties in any transaction or series of related transactions, including the sale of our principal Russian operatingsubsidiary, is subject to the prior approval of the holder of our priority share. The priority share does not carry any rights to control the management oroperations of our company, and its economic rights are limited to its pro rata entitlement to dividends and other distributions. Our articles of associationprovide that the priority share may only be held by a party that is specifically nominated by our board of directors for this purpose. The rights of the priorityshare would terminate if any law is adopted or amended in Russia that restricts the ownership by non-Russian parties of internet businesses in Russia. Our board of directors and shareholders approved the priority share mechanism with the objective of strengthening control over our company'sownership structure and providing transparency into changes in share ownership. We believe that this structure allows us to avoid the dominance of anysingle group of investors. In addition, we believe that this mechanism allows us to attract appropriate levels of both Russian and non-Russian investment. In nominating Sberbank as the party to which the priority share would be issued, our board of directors considered three principal criteria: the holder hadto be controlled by the Russian government, the holder had to be public, and the holder could not have interests in the internet or media sectors that wouldconflict with the interests of our business. Our board also considered Sberbank to be an appropriate holder of the priority share in light of what our boardbelieves to be its respected and professional management team. Because our board views the holder of the priority share as playing a valuable role incontributing to the stability of our business and the transparency of our106 Table of Contentsshareholder base, and because the priority share carries only an immaterial economic interest in our company, we issued the priority share for only nominalconsideration.Yandex.Money Joint Venture In July 2013, we sold a 75 percent (less 1 ruble) interest in our Yandex.Money business to Sberbank for $60 million in cash and entered into a jointventure arrangement with Sberbank in respect of the future operation of this business, which continues under the Yandex.Money brand. Our joint ventureagreement with Sberbank provides for standard minority protections and addresses corporate governance matters such as veto rights, deadlock mechanismsand rights of first refusal and co-sale. Following the sale of the controlling interest and deconsolidation of Yandex.Money in July 2013, we retained a non-controlling interest and significantinfluence over Yandex.Money's business. We continue to use Yandex.Money for payment processing and subleases to Yandex.Money part of its premises.The amount of revenues from subleasing and online payment commissions was RUR 78 million ($1.4 million) and RUR 125 million ($2.2 million),respectively, for the year ended December 31, 2014. As of December 31, 2014, the amount of receivables related to payment processing was RUR 46 million($0.8 million). We believe that the terms of the agreements with Yandex.Money are comparable to the terms obtained in arm's-length transactions withunrelated similarly situated customers and suppliers of the Company. Item 8. Financial Information. See the financial statements beginning on page F-1.Dividends We do not have any present plan to pay cash dividends on our shares in the near term. Any future determination as to the declaration and payment ofdividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operatingresults, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. If and when we pay dividends in the future, they will be payable on a pari passu basis on the outstanding Class A and Class B shares and the priorityshare. Although our Class C shares are technically entitled to a maximum dividend of €0.01 per share when we declare dividends on our Class A and Class Bshares, we intend to repurchase all Class C shares issued upon conversion of our Class B shares promptly following their issuance such that no dividendswould be payable on our Class C shares. Cash dividends on our shares, if any, will be paid in U.S. dollars. Item 9. The Listing. Markets Our Class A ordinary shares are currently listed on the NASDAQ Global Select Market, under the symbol "YNDX".107 Table of Contents The following table sets forth the high and low closing sale prices on the NASDAQ Global Select Market for our Class A ordinary shares for (1) the threemost recent years, (2) the each quarter of the two most recent full financial years and any interim period, and (3) the six most recent months. On March 31, 2015, the closing sale price per share on the NASDAQ Global Select Market was $15.16. In June 2014, our Class A ordinary shares were admitted to trading on Moscow Exchange (MOEX) and are currently listed in the Listing A Level 1, topquotation list on MOEX, under the symbol "YNDX". The following table sets forth the high and low closing sale prices on MOEX for our Class A ordinary shares for (1) the each quarter of the most recentfull financial years and any interim period, and (3) the six most recent months. On March 31, 2015, the closing sale price per share on Moscow Exchange was RUR893.108 High Low Annual Highs and Lows $ $ 2014 44.22 16.82 2013 43.15 20.07 2012 27.30 16.66 Quarterly Highs and Lows First Quarter 2015 18.42 14.12 Fourth Quarter 2014 28.62 16.82 Third Quarter 2014 35.01 27.80 Second Quarter 2014 35.64 24.00 First Quarter 2014 44.22 28.75 Fourth Quarter 2013 43.15 35.54 Third Quarter 2013 37.93 27.49 Second Quarter 2013 29.26 20.07 First Quarter 2013 25.66 22.53 Monthly Highs and Lows March 2015 16.02 14.12 February 2015 17.01 14.91 January 2015 18.42 14.89 December 2014 23.98 16.82 November 2014 27.81 24.92 October 2014 28.62 24.44 High Low RUR RUR Quarterly Highs and Lows First Quarter 2015 1177 866 Fourth Quarter 2014 1283 991 Third Quarter 2014 1230 1031 Monthly Highs and Lows March 2015 1000 866 February 2015 1115 997 January 2015 1177 1075 December 2014 1283 991 November 2014 1239 1183 October 2014 1212 996 Table of Contents Item 10. Additional Information. Memorandum and Articles of Association We incorporate by reference into this Annual Report the description of our amended articles of association contained in our F-1 registration statement(File No. 333-173766) originally filed with the SEC on April 28, 2011, as amended. Our articles of association were amended as of May 21, 2012 andMay 22, 2013.Material Contracts We issued and sold $690 million in aggregate principal amount of 1.125% convertible senior notes due 2018, to qualified institutional buyers inreliance on Rule 144A under the United States Securities Act of 1933, as amended, in transactions closing December 17, 2013, and January 14, 2014. In connection with the offering of the notes, we entered into an Indenture, dated December 17, 2013, with the Bank of New York Mellon, a New Yorkbanking corporation, as trustee, which includes the terms and conditions upon which the notes are to be authenticated, issued and delivered. The notes areconvertible into cash, Class A shares of Yandex or a combination of cash and Class A shares, at our election, based on an initial conversion rate of 19.4354Class A shares per US$1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately US$51.45 per Class A share,subject to adjustment on the occurrence of certain events. Prior to June 15, 2018, the notes are convertible only upon the occurrence of certain events andduring certain periods, and thereafter, at any time until the close of business on the business day immediately preceding the maturity date of the notes. The notes bear interest at a rate of 1.125% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15,2014. The notes mature on December 15, 2018, unless earlier repurchased, redeemed or converted in accordance with their terms. The notes are seniorunsecured obligations of the Company and we do not have the right to redeem the notes prior to maturity, except in connection with certain changes in taxlaws. The net proceeds from the convertible note offering were approximately US$683 million, after deducting the initial purchasers' discount and estimatedoffering expenses. In 2014 and the first quarter of 2015, we repurchased an aggregate of $177.8 million face amount of the convertible notes for an aggregate of$154.0 million in the open market.Exchange Controls Under existing laws of the Netherlands, there are no exchange controls applicable to the transfer to persons outside of the Netherlands of dividends orother distributions with respect to, or of the proceeds from the sale of, shares of a Dutch company.TaxationTaxation in the NetherlandsGeneral The information set out below is a general summary of the material Dutch tax consequences in connection with the acquisition, ownership and transfer ofour Class A shares. The summary does not purport to be a comprehensive description of all the Dutch tax considerations that may be relevant for a particularholder of our Class A shares, who may be subject to special tax treatment under any applicable law, and this summary is not intended to be applicable inrespect of all categories of holders of the Class A shares. In particular, this summary is not applicable in respect of any holder who is, is109 Table of Contentsdeemed to be or is treated as a resident of the Netherlands for Dutch tax purposes nor to a holder that owns 5% or more of the nominal paid-in capital orvoting rights in our company. The summary is based upon the tax laws of the Netherlands as in effect on the date of this Annual Report, as well as regulations, rulings and decisions ofthe Netherlands and its taxing and other authorities available on or before such date and now in effect. All references in this summary to the Netherlands andNetherlands law are to the European part of the Kingdom of The Netherlands and its law, respectively, only. All of the foregoing is subject to change, whichcould apply retroactively and could affect the continuing validity of this summary. As this is a general summary, we recommend that investors orshareholders consult with their own tax advisors as to the Dutch or other tax consequences of the acquisition, ownership and transfer of our Class A shares,including, in particular, the application to their particular situations of the tax considerations discussed below. The following summary does not address the tax consequences arising in any jurisdiction other than the Netherlands in connection with the acquisition,ownership and transfer of our Class A shares. Our company currently takes the view that it is a resident of the Netherlands for tax purposes, including for purposes of tax treaties concluded by theNetherlands, and this summary so assumes. This summary further assumes that the holders of Class A shares will be treated for Dutch tax purposes as theabsolute beneficial owners of those Class A shares and any dividends (as defined below) received or realized with respect to such shares.Dividend Withholding TaxGeneral Dividends paid on the Class A shares to a holder of such shares are generally subject to Dutch dividend withholding tax at a rate of 15%. The term"dividends" for this purpose includes, but is not limited to:•distributions in cash or in kind, deemed and constructive distributions, and repayments of paid-in capital not recognized for Dutch dividendwithholding tax purposes; •liquidation proceeds, proceeds of redemption of shares or, generally, consideration for the repurchase of shares in excess of the average paid-incapital recognized for Dutch dividend withholding tax purposes; •the par value of shares issued to a shareholder or an increase of the par value of shares, as the case may be, to the extent that it does not appearthat a contribution to the capital recognized for Dutch dividend withholding tax purposes was made or will be made; and •partial repayment of paid-in capital, recognized for Dutch dividend withholding tax purposes, if and to the extent that there are net profits(zuivere winst), within the meaning of the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), unless the generalmeeting of our shareholders has resolved in advance to make such a repayment and provided that the par value of the shares concerned hasbeen reduced by a corresponding amount by way of an amendment of our articles of association. Generally we are responsible for the withholding of taxes at source and the remittance of the amounts withheld to the Dutch tax authorities; the dividendwithholding tax will not be for our account. If we have received a profit distribution from a foreign subsidiary located (a) in a jurisdiction with which the Netherlands has concluded a treaty for theavoidance of double taxation or (b) in Bonaire, St. Eustatius, Saba, Aruba, Curacao or St. Maarten, in which subsidiary we hold at least 25% of the nominalpaid-up capital or if the relevant tax treaty therein provides, we hold at least 25% of the110 Table of Contentsvoting rights, which distribution is exempt from Dutch corporate income tax and has been subject to a foreign withholding tax of at least 5%, we are notrequired to transfer to the Dutch tax authorities the full amount of Dutch dividend withholding tax in respect of dividends distributed by our company. Theamount that does not have to be transferred to the Dutch tax authorities can generally not exceed the lesser of (i) 3% of the portion of the dividendsdistributed by our company that is subject to Dutch dividend withholding tax; and (ii) 3% of the profit distributions our company received from qualifyingforeign subsidiaries in the calendar year in which our company distributes the dividends (up to the moment of such dividend distribution) and the twoprevious calendar years; further limitations and conditions apply. The amount of Dutch withholding tax that we may retain reduces the amount of dividend withholding tax that we are required to pay to the Dutch taxauthorities, but does not reduce the amount of tax we are required to withhold from dividends paid to a holder of our Class A shares. Upon request, a holder ofour Class A shares will be notified by our company of the amount of the Dutch withholding tax that was retained by us.Non-residents of the Netherlands (including but not limited to U.S. holders) The following is a description of the material Dutch tax consequences to a holder of Class A shares who is not treated as a resident of the Netherlands forpurposes of Dutch taxation (a "Non-Resident of the Netherlands") and who is considered to be a resident of (i) Aruba, Curacao or St. Maarten under theprovisions of the Tax Convention for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk), (ii) Bonaire, St.Eustatius or Saba under theprovisions of the Tax Arrangement for the country of the Netherlands (Belastingregeling voor het land Nederland); or (iii) a country other than theNetherlands under the provisions of a double taxation convention the Netherlands has concluded with such country. Such holder may, depending on theterms of and subject to compliance with the procedures for claiming benefits under the Tax Convention for the Kingdom of the Netherlands, the TaxArrangement for the country of the Netherlands or such double taxation convention, be eligible for a full or partial exemption from or a reduction or refund ofDutch dividend withholding tax. Further, entities (i) that are resident in another EU Member State, in a by Ministerial Decree appointed State of the EEA i.e. Iceland, Norway andLiechtenstein, or a country outside the EU/EEA which has an arrangement for the exchange of tax information with the Netherlands; and (ii) that are notsubject to taxation by reference to profits in such State, in principle have the possibility to obtain a full refund of Dutch dividend withholding tax, providedsuch entities would not have been subject to Dutch corporate income tax either had they been resident within the Netherlands, and provided further that suchentities do not perform a similar function to that of a tax exempt investment institutions or fiscal investment institutions as referred to in the Dutch CorporateIncome Tax Act 1969, and with respect to entities resident in a country outside the EU/EEA which has an arrangement for the exchange of tax informationwith the Netherlands, provided such entities hold their Class A shares as a portfolio investment, i.e. such shares are not held with a view to the establishmentor maintenance of lasting and direct economic links between such holder of Class A shares and our company, and these shares do not allow such holder toeffectively participate in the management or control of our company. A holder of Class A shares who is considered to be a resident of the United States and is entitled to the benefits of the 1992 Double Taxation Treatybetween the United States and the Netherlands ("U.S. holder"), as amended most recently by the Protocol signed March 8, 2004 (the "Treaty") will generallybe subject to Dutch dividend withholding tax at the rate of 15% unless such U.S. holder is an exempt pension trust as described in article 35 of the Treaty, oran exempt organization as described in article 36 of the Treaty.111 Table of Contents U.S. holders that are exempt pension trusts or exempt organizations as described in articles 35 and 36, respectively, of the Treaty may qualify for anexemption from Dutch withholding tax and may generally claim (i) in the case of an exempt pension trust full exemption at source by timely filing twocompleted copies of form IB 96 USA signed by the U.S. holder accompanied with U.S. form 6166 (as issued by the U.S. Internal Revenue Service and validfor the relevant tax year) or (ii) in the case of either an exempt pension trust or an exempt organization a full refund by filing through the withholding agentas mentioned in article 9 of the Dutch Dividend Withholding Tax Act 1965 (which is generally the company) one of the following forms signed by the U.S.holder within three years after the end of the calendar year in which the withholding tax was levied:•if the U.S. holder is an exempt pension trust as described in article 35 of the Treaty: two completed copies of Form IB 96 USA accompaniedwith U.S. Form 6166 as issued by the U.S. Internal Revenue Service valid for the relevant tax year and •if the U.S. holder is an exempt organization as described in article 36 of the Treaty: two completed copies of Form IB 95 USA accompaniedwith U.S. Form 6166 as issued by the U.S. Internal Revenue Service, valid for the relevant tax year.Taxes on Income and Capital GainsGeneral The description of taxation set out in this section of this Annual Report is not intended for any holder of Class A shares who is:•an individual for whom the income or capital gains derived from the Class A shares are attributable to employment activities the income fromwhich is taxable in the Netherlands; or •an individual who holds, or is deemed to hold, a Substantial Interest (aanmerkelijk belang) in our company (as defined below). Generally, a holder of Class A shares will have a substantial interest in our company ("Substantial Interest") if he holds, alone or together with his partner,whether directly or indirectly, the ownership of, or certain other rights over, shares representing 5% or more of our total issued and outstanding capital (or theissued and outstanding capital of any class of shares), or rights to acquire shares, whether or not already issued, that represent at any time 5% or more of ourtotal issued and outstanding capital (or the issued and outstanding capital of any class of shares) or the ownership of, or certain other rights over, profitparticipating certificates that relate to 5% or more of the annual profit and/or to 5% or more of our liquidation proceeds. A holder of Class A shares will alsohave a Substantial Interest in our company if certain relatives of that holder or of his partner have a Substantial Interest in our company. If a holder of Class Ashares does not have a Substantial Interest, a deemed Substantial Interest will be present if (part of) a Substantial Interest has been disposed of, or is deemed tohave been disposed of, on a non-recognition basis. Please note that under Dutch tax law an individual is considered as a holder of Class A shares if he/she isdeemed to hold an interest in the Class A shares pursuant to the attribution rules of article 2.14a of the Dutch Income Tax Act 2001, with respect to propertythat has been segregated, for instance in a trust or a foundation.Non-residents of the Netherlands (including, but not limited to, U.S. holders) A Non-Resident of the Netherlands who holds Class A shares is generally not subject to Dutch income or corporate income tax (other than dividendwithholding tax described above) on the income and capital gains derived from the Class A shares, provided that:•such Non-Resident of the Netherlands does not derive profits from an enterprise or deemed enterprise, whether as an entrepreneur (ondernemer)or pursuant to a co-entitlement to the net112 Table of Contentsworth of such enterprise (other than as an entrepreneur or a shareholder) which enterprise is, in whole or in part, carried on through a permanentestablishment or a permanent representative in the Netherlands or effectively managed in the Netherlands and to which enterprise or part of anenterprise, as the case may be, the Class A shares are attributable or deemed attributable;•in the case of a Non-Resident of the Netherlands which is an entity, such entity does not have a Substantial Interest or deemed SubstantialInterest in our company, or if such holder does have such Substantial Interest, it forms part of the assets of an enterprise or it is not held withthe primary purpose or one of the primary purposes of avoiding the levy of Dutch income tax or Dutch dividend withholding tax withsomeone else; •in the case of a Non-Resident of the Netherlands who is an individual, (a) such individual does not carry out any activities in the Netherlandswith respect to the Class A shares that exceed ordinary active asset management (normaal vermogensbeheer), (b) the benefits derived fromsuch Class A shares are not intended as remuneration for activities performed by a holder of Class A shares or by a person connected to suchholder as meant by article 3.92b paragraph 5 of the Dutch Income Tax Act 2001 and (c) such individual does not derive income or capitalgains from the Class A shares that are taxable as benefits from "other miscellaneous activities" in the Netherlands (resultaat uit overigewerkzaamheden in Nederland); •in the case of a Non-Resident of the Netherlands which is an entity, it is neither entitled to a share in the profits of an enterprise effectivelymanaged in the Netherlands, nor co-entitled to the net worth of such enterprise, other than by way of the holding of securities, to whichenterprise the Class A shares or payments in respect of the Class A shares are attributable; and •in the case of a Non-Resident of the Netherlands who is an individual, such individual is not entitled to a share in the profits of an enterpriseeffectively managed in the Netherlands, other than by way of the holding of securities or, through an employment contract, to which enterprisethe Class A shares or payments in respect of Class A shares are attributable. A U.S. holder that is entitled to the benefits of the Treaty and whose Class A shares are not attributable to a Dutch enterprise or deemed enterprise, willgenerally not be subject to Dutch taxes on any capital gain realized on the disposal of such Class A shares.Gift, Estate or Inheritance Taxes No Dutch gift, estate or inheritance taxes will arise on the transfer of Class A shares by way of a gift by, or on the death of, a holder of Class A shares whois neither resident nor deemed to be resident in the Netherlands, unless in the case of a gift of the Class A shares by an individual who at the date of the giftwas neither resident nor deemed to be resident in the Netherlands (i) such individual dies within 180 days after the date of the gift, while being resident ordeemed to be resident in the Netherlands; or (ii) the gift of the Class A shares is made under a condition precedent and the holder of these shares is resident, oris deemed to be resident, in the Netherlands at the time the condition is fulfilled. For purposes of Dutch gift, estate and inheritance taxes, an individual who holds the Dutch nationality will be deemed to be resident in the Netherlandsif he or she has been resident in the Netherlands at any time during the ten years preceding the date of the gift or his or her death. Additionally, for purposesof Dutch gift tax, an individual not holding the Dutch nationality will be deemed to be resident in the Netherlands if he or she has been resident in theNetherlands at any time during the twelve months preceding the date of the gift. Applicable tax treaties may override deemed residency.113 Table of ContentsValue-Added Tax There is no Dutch value-added tax payable in respect of payments in consideration for the sale of the Class A shares (other than value added taxes on feespayable in respect of services not exempt from Dutch value added tax).Other Taxes and Duties There is no Dutch registration tax, capital tax, customs duty, stamp duty or any other similar documentary tax or duty other than court fees payable in theNetherlands by a holder of Class A shares in respect of or in connection with the execution, delivery and enforcement by legal proceedings (including anyforeign judgment in the courts of the Netherlands) of the Class A shares.Residence Other than as set forth above, a holder of Class A shares will not become or be deemed to become a resident of the Netherlands, nor will a holder ofClass A shares otherwise become subject to taxation in the Netherlands, solely by reason of holding the Class A shares.Taxation in the United States The following summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A shares is basedupon current law and does not purport to be a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase ourClass A shares. This summary is based on current provisions of the Internal Revenue Code, existing, final, temporary and proposed United States TreasuryRegulations, administrative rulings and judicial decisions, in each case as available on the date of this Annual Report. All of the foregoing are subject tochange, which change could apply retroactively and could affect the tax consequences described below. This section summarizes the material U.S. federal income tax consequences to U.S. holders, as defined below, of Class A shares. This summary addressesonly the U.S. federal income tax considerations for U.S. holders that hold the Class A shares as capital assets. This summary does not address all U.S. federalincome tax matters that may be relevant to a particular U.S. holder, nor does it address any state, local or foreign tax matters or matters relating to any U.S.federal tax other than the income tax. Each investor should consult its own professional tax advisor with respect to the tax consequences of the purchase,ownership and disposition of the Class A shares. This summary does not address tax considerations applicable to a holder of Class A shares that may besubject to special tax rules including, without limitation, the following:•certain financial institutions; •insurance companies; •dealers or traders in securities, currencies, or notional principal contracts; •tax-exempt entities; •regulated investment companies; •persons that hold the Class A shares as part of a wash sale, hedge, straddle, conversion, constructive sale or similar transaction; •persons that hold the Class A shares through partnerships or certain other pass-through entities; •persons that own (or are deemed to own) 10% or more of our voting shares; and •persons that have a "functional currency" other than the U.S. dollar.114 Table of Contents Further, this summary does not address alternative minimum tax consequences or indirect effects on the holders of equity interests in entities that ownour Class A shares. In addition, this discussion does not consider the U.S. tax consequences to non-U.S. holders of Class A shares. For the purposes of this summary, a "U.S. holder" is a beneficial owner of Class A shares that is, for U.S. federal income tax purposes:•an individual who is either a citizen or resident of the United States; •a corporation, or other entity that is treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws ofthe United States or any state of the United States or the District of Columbia; •an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or •a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more "United Statespersons," within the meaning of the Internal Revenue Code, have the authority to control all of the substantial decisions of such trust. If a partnership holds Class A shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of thepartnership. We will not seek a ruling from the U.S. Internal Revenue Service ("IRS") with regard to the U.S. federal income tax treatment of an investment in ourClass A shares, and we cannot assure you that that the IRS will agree with the conclusions set forth below. Distributions. Subject to the discussion under "Passive Foreign Investment Company Considerations" below, the gross amount of any distribution(including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a U.S. holder with respect to Class A shares willbe taxable to the U.S. holder as a dividend to the extent paid out of our current or accumulated earnings and profits as determined under U.S. federal incometax principles. Distributions in excess of our current and accumulated earnings and profits will be non-taxable to the U.S. holder to the extent of, and will beapplied against and reduce, the U.S. holder's adjusted tax basis in the Class A shares. Distributions in excess of our current and accumulated earnings andprofits and such adjusted tax basis will generally be taxable to the U.S. holder as capital gain from the sale or exchange of property. However, since we do notcalculate our earnings and profits under U.S. federal income tax principles, it is expected that any distribution will be reported as a dividend, even if thatdistribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. The amount of any distribution ofproperty other than cash will be the fair market value of that property on the date of distribution. The U.S. holder will not be eligible for any dividends-received deduction in respect of the dividend otherwise allowable to corporations. Under the Internal Revenue Code, qualified dividends received by certain non-corporate U.S. holders (i.e., individuals and certain trusts and estates)currently are subject to a maximum income tax rate of 20%. This reduced income tax rate is applicable to dividends paid by "qualified foreign corporations"to such non-corporate U.S. holders that meet the applicable requirements, including a minimum holding period (generally, at least 61 days during the 121-day period beginning 60 days before the ex-dividend date). We believe that we are a qualified foreign corporation under the Internal Revenue Code.Accordingly, dividends paid by us to non-corporate U.S. holders with respect to Class A shares that meet the minimum holding period and other requirementsare expected to be treated as "qualified dividend income." However, dividends paid by us will not qualify for the 20% U.S. federal income tax rate cap if weare treated, for the tax year in which the dividends are paid or the preceding tax year, as a "passive foreign investment company" for U.S. federal income taxpurposes, as discussed below. Dividends paid by us that are not treated as qualified dividends will be taxable at the normal115 Table of Contents(and currently higher) ordinary income tax rates, except to the extent that they are taxable otherwise if we are a passive foreign investment company asdescribed below. Dividends received by a U.S. holder with respect to Class A shares generally will be treated as foreign source income for the purposes of calculating thatholder's foreign tax credit limitation. Subject to applicable conditions and limitations, and subject to the discussion in the next two paragraphs, any Dutchincome tax withheld on dividends may be deducted from taxable income or credited against a U.S. holder's U.S. federal income tax liability. The limitationon foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific classes of income. For this purpose, dividendsdistributed by us generally will constitute "passive category income" (but, in the case of some U.S. holders, may constitute "general category income"). A "United States person," within the meaning of the Internal Revenue Code, that is an individual, an estate or a nonexempt trust is generally subject to a3.8% surtax on the lesser of (i) the United States person's "net investment income" for the year and (ii) the excess of the United States person's "modifiedadjusted gross income" for that year over a threshold (which, in the case of an individual, will be between $125,000 and $250,000, depending on theindividual's U.S. tax filing status). A U.S. holder's net investment income generally will include, among other things, dividends on, and gains from the sale orother taxable disposition of, our Class A shares, unless (with certain exceptions) those dividends or gains are derived in the ordinary course of a trade orbusiness. Net investment income may be reduced by deductions properly allocable thereto; however, the U.S. foreign tax credit may not be available toreduce the surtax. Upon making a distribution to shareholders, we may be permitted to retain a portion of the amounts withheld as Dutch dividend withholding tax. See "—Taxation in the Netherlands—Dividend Withholding Tax—General." The amount of Dutch withholding tax that we may retain reduces the amount ofdividend withholding tax that we are required to pay to the Dutch tax authorities but does not reduce the amount of tax we are required to withhold fromdividends paid to U.S. holders. In these circumstances, it is likely that the portion of dividend withholding tax that we are not required to pay to the Dutchtax authorities with respect to dividends distributed to U.S. holders would not qualify as a creditable tax for U.S. foreign tax credit purposes. Sale or other disposition of Class A shares. A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes upon the sale orexchange of Class A shares in an amount equal to the difference between the U.S. dollar value of the amount realized from such sale or exchange and the U.S.holder's tax basis for those Class A shares. Subject to the discussion under "Passive Foreign Investment Company Considerations" below, this gain or losswill be capital gain or loss and will generally be treated as from sources within the United States. Capital gain or loss will be long-term capital gain or loss ifthe U.S. holder held the Class A shares for more than one year at the time of the sale or exchange; in general, long-term capital gains realized by non-corporate U.S. holders are eligible for reduced rates of tax. The deductibility of losses incurred upon the sale or other disposition of capital assets is subject tolimitations. Passive foreign investment company considerations. A corporation organized outside the United States generally will be classified as a passive foreigninvestment company ("PFIC") for U.S. federal income tax purposes in any taxable year in which, after applying the applicable look-through rules, either: (i) atleast 75% of its gross income is passive income, or (ii) at least 50% of the average gross value of its assets is attributable to assets that produce passive incomeor are held for the production of passive income. In arriving at this calculation, a pro rata portion of the income and assets of each corporation in which weown, directly or indirectly, at least a 25% interest by value, must be taken into account. Passive income for this purpose generally includes dividends,interest, royalties, rents and gains from commodities and securities transactions. We believe that we were not a PFIC for the 2012 and 2013 taxable years.Based on estimates of our gross income and the average value of our gross assets,116 Table of Contentsand on the nature of the active businesses conducted by our "25% or greater" owned subsidiaries, we do not expect to be a PFIC in the current taxable yearand do not expect to become one in the foreseeable future. However, because our status for any taxable year will depend on the composition of our incomeand assets and the value of our assets for such year, and because this is a factual determination made annually after the end of each taxable year, there can beno assurance that we will not be considered a PFIC for the current taxable year or any future taxable year. In particular, the value of our assets may bedetermined in large part by reference to the market price of our Class A shares, which may fluctuate considerably. If we were a PFIC for any taxable yearduring which a U.S. holder held Class A shares, gain recognized by the U.S. holder on a sale or other disposition (including a pledge) of the Class A shareswould be allocated ratably over the U.S. holder's holding period for the Class A shares. The amounts allocated to the taxable year of the sale or otherdisposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subjectto tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on theresulting tax liability for that taxable year. Similar rules would apply to the extent any distribution in respect of Class A shares exceeds 125% of the averageof the annual distributions on Class A shares received by a U.S. holder during the preceding three years or the holder's holding period, whichever is shorter.Elections may be available that would result in alternative treatments (such as a mark-to-market treatment) of the Class A shares. In addition, if we areconsidered a PFIC for the current taxable year or any future taxable year, U.S. holders will be required to file annual information returns for such year, whetheror not the U.S. holder disposed of any Class A shares or received any distributions in respect of Class A shares during such year. Backup Withholding and Information Reporting. U.S. holders generally will be subject to information reporting requirements with respect to dividendson Class A shares and on the proceeds from the sale, exchange or disposition of Class A shares that are paid within the United States or through U.S.-relatedfinancial intermediaries, unless the U.S. holder is an "exempt recipient." In addition, certain U.S. holders who are individuals may be required to report to theIRS information relating to their ownership of the Class A shares, subject to certain exceptions (including an exception for shares held in an accountmaintained by a U.S. financial institution). U.S. holders may be subject to backup withholding (currently at 28%) on dividends and on the proceeds from thesale, exchange or disposition of Class A shares that are paid within the United States or through U.S.-related financial intermediaries, unless the U.S. holderprovides a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption. Backup withholding is not anadditional tax and the amount of any backup withholding will be allowed as a credit against a U.S. holder's U.S. federal income tax liability and may entitlesuch holder to a refund, provided that the required information is timely furnished to the IRS.Documents on Display We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no laterthan four months after the close of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected withoutcharge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza,100 F Street, N.E., Washington, D.C. 20549, and at the regional office of the Securities and Exchange Commission located at Citicorp Center, 500 WestMadison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding the Washington, D.C. Public Reference Room by callingthe Commission at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and otherinformation regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign117 Table of Contentsprivate issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, andofficers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of theExchange Act. Item 11. Quantitative and Qualitative Disclosures About Market Risk. See "Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures about Market Risk."118 Table of Contents PART II. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds. Not applicable. Item 15. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The company's management, with the participation of the company's chief executive officer and chief financial officer, evaluated the effectiveness of thecompany's disclosure controls and procedures as of December 31, 2014. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specifiedin the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company'smanagement, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achievingtheir objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based onthe evaluation of the company's disclosure controls and procedures as of December 31, 2014, the company's chief executive officer and chief financial officerconcluded that, as of such date, the company's disclosure controls and procedures were effective.Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate "internal control over financial reporting," as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. This rule defines internal control over financial reporting as a process designed by, or under the supervision of, acompany's chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessaryto permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements. Management assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2014. This assessmentwas performed under the direction and supervision of our chief executive officer and chief financial officer, and based on criteria established in InternalControl—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, weconcluded that as of December 31, 2014, our internal control over financial reporting was effective.119 Table of Contents No change in the company's internal control over financial reporting occurred during the fiscal year ended December 31, 2014 that has materiallyaffected, or is reasonably likely to materially affect, the company's internal control over financial reporting. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by ZAO Deloitte & Touche CIS, ourindependent registered public accounting firm. Their report may be found below.120 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Yandex N.V.: We have audited the internal control over financial reporting of Yandex N.V. and subsidiaries (the "Company") as of December 31, 2014, based oncriteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispositionof the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based onthe criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements of the Company as of and for the year ended December 31, 2014 of the Company and our report dated April 30, 2015 expressed an unqualifiedopinion on those financial statements and included an explanatory paragraph regarding the translation of Russian ruble amounts into U.S. dollar amountspresented solely for the convenience of readers in the United States of America./s/ ZAO Deloitte & Touche CISMoscow, RussiaApril 30, 2015121 Table of Contents Item 16A. Audit Committee Financial Expert. Mr. Ryan qualifies as an "audit committee financial expert," as defined in Item 16A of Form 20-F and as determined by our board of directors Item 16B. Code of Ethics. We have adopted a written code of ethics applicable to directors, members of senior management and employees of the company and any of thecompany's direct and indirect subsidiaries. Our code of ethics is posted on our company website at:http://files.shareholder.com/downloads/YNDX/2922636862x0x555143/d62ce4dc-15b3-46b5-8083-caf95620de2f/Code_of_Business_Ethics_and_Conduct.pdf. Any amendments to our code of ethics will be disclosed on our website within five business days of the occurrence. Item 16C. Principal Accountant Fees and Services. The following table summarizes the fees of ZAO Deloitte & Touche CIS, our independent registered public accounting firm, or its affiliates billed to usfor each of the last two fiscal years.Pre-Approval Policies for Non-Audit Services In 2011, we established a policy pursuant to which we will not engage our auditors to perform any non-audit services unless the audit committee pre-approves the service. The audit committee pre-approved 100% of the non-audit services performed for us by Deloitte & Touche during 2014.122 2013 2014 (RUR in million) Audit Fees(1) 27.1 25.8 Audit Related Fees(2) 7.8 15.6 Tax Fees(3) 0.9 1.4 All Other Fees — — Total Fees 35.8 42.8 (1)Audit fees for 2013 and 2014 were for professional services provided for the review of interim financial statements and theaudit of our consolidated annual financial statements included in our Annual Reports on Form 20-F or services normallyprovided in connection with statutory and regulatory filings or engagements for those fiscal years. (2)Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the auditor review of our financial statements and which are not reported under "Audit Fees". (3)Tax fees consist of fees for tax compliance and tax advice services. The tax advice services relate to tax advice on our revisedemployee incentive plan. Table of Contents Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. ISSUER PURCHASES OF EQUITY SECURITIES Item 16F. Changes in Registrant's Certifying Accountant None. Item 16G. Corporate Governance. The Sarbanes Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, including our company,to comply with various corporate governance practices. In addition, NASDAQ rules provide that foreign private issuers may follow home country practice inlieu of the NASDAQ corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S.federal securities laws. The home country practices followed by our company in lieu of NASDAQ rules are described below:•We do not follow NASDAQ's quorum requirements applicable to meetings of shareholders. In accordance with Dutch law and generallyaccepted business practice, our articles of association do not provide quorum requirements generally applicable to general meetings ofshareholders. •We do not follow NASDAQ's requirements regarding the provision of proxy statements for general meetings of shareholders. Dutch law doesnot have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice123Period (a) TotalNumber ofSharesPurchased(1) (b) AveragePrice Paid perShares(2) (c) Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms(1) (d) Maximum Number(or Approximate DollarValue) of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms(3) January 1 - 31, 2014 929,125 $41.2001 929,125 5,397,194 February 1 - 28, 2014 800,000 $38.1852 800,000 4,597,194 March 1 - 31, 2014 1,238,200 $31.2890 1,238,200 3,358,994 April 1 - 30, 2014 1,804,577 $27.2233 1,804,577 1,554,417 May 1 - 31, 2014 1,186,700 $29.1775 1,186,700 367,717 June 1 - 30, 2014 367,717 $33.2063 367,717 0 July 1 - 31, 2014 — $— — 3,000,000 August 1 - 31, 2014 2,000 $28.4000 2,000 2,998,000 September 1 - 30, 2014 21,000 $30.0142 21,000 2,977,000 October 1 - 31, 2014 616,355 $25.3483 616,355 2,360,645 November 1 - 30, 2014 360,645 $25.9596 360,645 2,000,000 December 1 - 31, 2014 — $— — — Total 7,326,125 $31.2852 7,326,319 2,000,000 (1)As of trade date (2)Weighted average per month (3)On March 11, 2013, we announced that our board of directors had authorized a program to repurchase up to 12 million of our Class Ashares from time to time in open market transactions. On December 10, 2013, we announced that our board of directors had authorizedan increase in our existing 12 million share repurchase program by 3 million shares, to a total of up to 15 million shares. The programwas completed in June 2014. On July 29, 2014, we announced an additional increase of the amended repurchase program for anadditional 3 million shares. Table of Contentsin the Netherlands. We do intend to provide shareholders with an agenda and other relevant documents for the general meeting ofshareholders. We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirementsof the Sarbanes Oxley Act, the rules adopted by the SEC and NASDAQ's listing standards. As a Dutch company listed on a government recognized stockexchange, we are required to apply the provisions of the Dutch Corporate Governance Code as released in 2003 and amended in 2009, or explain anydeviation from the provisions of such code in our Dutch Annual Report required by Dutch law.124 Table of Contents YANDEX N.V.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1 Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2013 and 2014 F-3 Consolidated Statements of Income for the Years Ended December 31, 2012, 2013 and 2014 F-4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2013 and 2014 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2013 and 2014 F-6 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2012, 2013 and 2014 F-7 Notes to Consolidated Financial Statements F-8 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of Yandex N.V.: We have audited the accompanying consolidated balance sheets of Yandex N.V. and subsidiaries (together the "Company") as of December 31, 2013 and2014, and the related consolidated statements of income, comprehensive income, cash flows and shareholders' equity for each of the three years in the periodended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Yandex N.V. and subsidiaries as ofDecember 31, 2013 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, inconformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of December 31, 2014 based on the criteria established in Internal Control—Integrated Framework (1992) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated April 30, 2015, expressed an unqualified opinion on theCompany's internal control over financial reporting. Our audits also comprehended the translation of Russian ruble amounts into U.S. dollar amounts and, in our opinion, such translations have been madein conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers in the United States of America./s/ ZAO Deloitte & Touche CISMoscow, RussiaApril 30, 2015F-2 Table of ContentsYANDEX N.V.CONSOLIDATED BALANCE SHEETS(In millions of Russian rubles ("RUR") and U.S. dollars ("$"), except share and per share data) The accompanying notes are an integral part of the consolidated financial statements.F-3 As of December 31, Notes 2013 2014 2014 RUR RUR $ ASSETS Current assets: Cash and cash equivalents 5 33,394 17,645 313.6 Marketable securities 5 87 — — Term deposits — 5,863 104.2 Investments in debt securities 5 — 3,124 55.5 Accounts receivable, net 5 2,785 3,703 65.8 Prepaid expenses 689 1,556 27.8 Deferred tax assets 10 596 180 3.2 Other current assets 5 1,332 3,736 66.4 Total current assets 38,883 35,807 636.5 Property and equipment, net 8 9,729 17,107 304.1 Intangible assets, net 9 664 2,425 43.1 Goodwill 9 2,915 8,920 158.6 Long-term prepaid expenses 1,042 1,590 28.1 Restricted cash 5 104 932 16.6 Term deposits, non-current 15,180 25,663 456.2 Investments in non-marketable equity securities 5 1,250 871 15.5 Deferred tax assets, non-current 10 3 4 0.1 Other non-current assets 5 1,541 1,605 28.5 TOTAL ASSETS 71,311 94,924 1,687.3 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities 5 3,710 5,053 89.8 Taxes payable 1,688 2,930 52.1 Deferred revenue 1,501 1,808 32.1 Deferred tax liabilities 10 16 5 0.1 Total current liabilities 6,915 9,796 174.1 Convertible debt 11 16,429 26,325 467.9 Deferred tax liabilities, non-current 10 1,245 1,587 28.2 Other accrued liabilities 125 1,480 26.4 Total liabilities 24,714 39,188 696.6 Commitments and contingencies 12 Shareholders' equity: Priority share: €1 par value; 1 share authorized, issued and outstanding 13 — — — Preference shares: €0.01 par value; 2,000,000,001 and 1,000,000,001, shares authorized, nil shares issued andoutstanding 13 — — — Ordinary shares: par value (Class A €0.01, Class B €0.10 and Class C €0.09); shares authorized (Class A:2,000,000,000 and 1,000,000,000, Class B: 102,115,140 and 71,870,411, and Class C: 102,115,140 and71,870,411); shares issued (Class A: 256,998,306 and 267,970,405, Class B: 72,923,447 and 62,051,348, andClass C: 23,110,819 and 8,919,063, respectively); shares outstanding (Class A: 250,732,061 and 255,592,322,Class B: 72,923,447 and 62,051,348, and Class C: nil) 13 242 182 3.2 Treasury shares at cost (Class A: 6,266,245 and 12,378,083) 13 (6,886) (14,179) (252.0)Additional paid-in capital 15,701 16,192 287.8 Accumulated other comprehensive income 2, 5 2,042 1,023 18.2 Retained earnings 35,498 52,518 933.5 Total shareholders' equity 46,597 55,736 990.7 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 71,311 94,924 1,687.3 Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF INCOME(In millions of Russian rubles and U.S. dollars, except share and per share data) The accompanying notes are an integral part of the consolidated financial statements.F-4 Year ended December 31, Notes 2012 2013 2014 2014 RUR RUR RUR $ Revenues 15 28,767 39,502 50,767 902.4 Operating costs and expenses: Cost of revenues(1) 7,188 10,606 14,336 254.8 Product development(1) 4,274 5,827 8,842 157.2 Sales, general and administrative(1) 4,900 6,537 7,782 138.3 Depreciation and amortization 2,951 3,695 4,484 79.7 Total operating costs and expenses 19,313 26,665 35,444 630.0 Income from operations 9,454 12,837 15,323 272.4 Interest income, net 1,002 1,717 856 15.2 Other income, net 118 2,159 6,296 111.9 Net income before income taxes 10,574 16,713 22,475 399.5 Provision for income taxes 10 2,351 3,239 5,455 97.0 Net income 8,223 13,474 17,020 302.5 Net income per Class A and Class B share: Basic 3 25.21 41.25 53.30 0.95 Diluted 3 24.50 40.27 52.27 0.93 Weighted average number of Class A and Class Bshares outstanding Basic 3 326,210,948 326,657,778 319,336,782 319,336,782 Diluted 3 335,690,596 334,571,212 325,610,277 325,610,277 (1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share-basedcompensation expenses of:Cost of revenues 33 61 101 1.8 Product development 221 435 780 13.9 Sales, general and administrative 122 258 329 5.8 Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions of Russian rubles and U.S. dollars) The accompanying notes are an integral part of the consolidated financial statements.F-5 Year ended December 31, Notes 2012 2013 2014 2014 RUR RUR RUR $ Net income 8,223 13,474 17,020 302.5 Foreign currency translation adjustment: Foreign currency gains / (losses), net of tax, nil (867) 1,027 (1,019) (18.1)Reclassification translation adjustment, net of tax, nil 5 — 54 — — Foreign currency translation adjustment, net of tax, nil (867) 1,081 (1,019) (18.1)Total other comprehensive income / (loss) (867) 1,081 (1,019) (18.1)Comprehensive income 7,356 14,555 16,001 284.4 Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions of Russian rubles and U.S. dollars) The accompanying notes are an integral part of the consolidated financial statements.F-6 Years ended December 31, Notes 2012 2013 2014 2014 RUR RUR RUR $ CASH FLOWS FROM OPERATING ACTIVITIES: Net income 8,223 13,474 17,020 302.5 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 2,812 3,584 4,242 75.4 Amortization of acquisition-related intangible assets 139 111 242 4.3 Amortization of debt discount and issuance costs — 24 811 14.4 Share-based compensation expense 376 754 1,210 21.5 Deferred income taxes 72 (197) 115 2.0 Foreign exchange (gains) / losses 57 (139) (6,553) (116.5)Gain from sale of equity securities/subsidiaries (234) (2,137) — — Impairment of investment in equity securities — — 700 12.4 Gain from repurchases of convertible debt — — (548) (9.7)Other 51 (28) 38 0.7 Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable, net (526) (966) (714) (12.7)Prepaid expenses and other assets (923) (1,301) (3,069) (54.6)Accounts payable and accrued liabilities 1,277 1,195 1,817 32.4 Deferred revenue 195 401 235 4.2 Assets held for sale (411) (156) — — Liabilities related to assets held for sale 421 86 — — Net cash provided by operating activities 11,529 14,705 15,546 276.3 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment (3,984) (4,936) (9,679) (172.0)Proceeds from sale of property and equipment — — 132 2.3 Acquisitions of businesses, net of cash acquired 4 — (2,438) (6,360) (113.0)Investments in non-marketable equity securities 4 (47) (14) (45) (0.8)Proceeds from sale of equity securities 4 174 2,023 120 2.1 Investments in debt securities — — (2,546) (45.3)Proceeds from maturity of debt securities 1,521 4,969 575 10.2 Investments in term deposits (16,585) (11,450) (17,157) (304.9)Maturities of term deposits 8,512 11,290 7,234 128.6 Loans granted — (279) (207) (3.7)Escrow cash deposit 4 219 125 (656) (11.7)Net cash used in investing activities (10,190) (710) (28,589) (508.2)CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES: Proceeds from exercise of share options 361 439 191 3.3 Proceeds from issuance of convertible debt 11 — 19,719 2,981 53.0 Repurchases of convertible debt 11 — — (6,414) (114.0)Payment of debt issuance costs 11 — (179) (42) (0.7)Repurchases of ordinary shares — (8,518) (8,423) (149.7)Net cash provided by/(used in) financing activities 361 11,461 (11,707) (208.1)Effect of exchange rate changes on cash and cash equivalents (205) 513 9,001 160.0 Net change in cash and cash equivalents 1,495 25,969 (15,749) (280.0)Cash and cash equivalents at beginning of period 5,930 7,425 33,394 593.6 Cash and cash equivalents at end of period 7,425 33,394 17,645 313.6 Supplemental disclosure of cash flow information: Cash paid for income taxes 1,991 2,944 4,544 80.8 Cash paid for acquisitions 4 — 2,481 6,567 116.7 Interest paid — — 307 5.5 Non-cash investing activities: Change in accounts payable for property and equipment 16 193 643 11.4 Non-cash consideration from sale of equity securities 4 144 — — — Non-cash consideration for purchase of equity securities 4 — 112 — — Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(In millions of Russian rubles and U.S. dollars, except share and per share data) The accompanying notes are an integral part of the consolidated financial statements.F-7 Priority ShareIssued andOutstanding Ordinary SharesIssued andOutstanding AccumulatedOtherComprehensiveIncome/(Loss) Treasuryshares atcost AdditionalPaid-InCapital RetainedEarnings Shares Amount Shares Amount Total RUR RUR RUR RUR RUR RUR RUR Balance as of January 01, 2012 1 — 323,838,730 595 — 12,729 1,828 13,801 28,953 Share-based compensation expense — — — — — 376 — — 376 Share-based compensation taxbenefits — — — — — 2 — — 2 Exercise of share options — — 3,921,352 1 — 359 — — 360 Class B shares conversion — — — (151) — 151 — — — Foreign currency translationadjustment — — — — — — (867) — (867)Net income — — — — — — — 8,223 8,223 Balance as of December 31, 2012 1 — 327,760,082 445 — 13,617 961 22,024 37,047 Share-based compensation expense — — — — — 754 — — 754 Exercise of share options (Note 14) — — 4,494,804 1 — 439 — — 440 Class B shares conversion — — — (204) — 204 — — — Repurchases of shares (Note 13) — — (8,599,377) — (8,518) — — — (8,518)Reissue of shares for optionsexercised — — — — 1,632 (1,632) — — — Issuance of convertible debt — — — — — 2,319 — — 2,319 Foreign currency translationadjustment, includingreclassification — — — — — — 1,081 — 1,081 Net income — — — — — — — 13,474 13,474 Balance as of December 31, 2013 1 — 323,655,509 242 (6,886) 15,701 2,042 35,498 46,597 Share-based compensation expense — — — — — 1,210 — — 1,210 Exercise of share options (Note 14) — — 1,434,480 1 — 188 — — 189 Class B shares conversion — — — (61) — 61 — — — Repurchases of shares (Note 13) — — (7,446,319) — (8,436) — — — (8,436)Reissue of shares for optionsexercised — — — — 1,143 (1,143) — — — Issuance of convertible debt — — — — — 442 — — 442 Repurchase of convertible debt — — — — — (312) — — (312)Windfall tax benefit — — — — — 45 — — 45 Foreign currency translationadjustment — — — — — — (1,019) — (1,019)Net income — — — — — — — 17,020 17,020 Balance as of December 31, 2014 1 — 317,643,670 182 (14,179) 16,192 1,023 52,518 55,736 Balance as of December 31, 2014,$ — 3.2 (252.0) 287.8 18.2 933.5 990.7 Table of Contents YANDEX N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 (in millions of Russian rubles and U.S. dollars, except share and per share data) 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS Yandex N.V., together with its consolidated subsidiaries (together, the "Company"), is an internet and technology company and operates Russia's largestinternet search engine. The Company generates substantially all of its revenues from online advertising. Until July 2013, it also generated revenues fromonline payment commissions. Yandex N.V. was incorporated under the laws of the Netherlands in June 2004 and is the holding company of Yandex LLC, incorporated in the RussianFederation in October 2000, and other subsidiaries.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the UnitedStates of America ("U.S. GAAP"). The accompanying consolidated financial statements differ from the financial statements prepared by the group's individuallegal entities for statutory purposes in that they reflect certain adjustments, not recorded in the accounting records of the group's individual legal entities,which are appropriate to present the financial position, results of operations and cash flows in accordance with U.S. GAAP. Distributable retained earnings ofthe Company are based on amounts reported in statutory accounts of individual entities and may significantly differ from amounts calculated on the basis ofU.S. GAAP.Principles of Consolidation The consolidated financial statements include the accounts of the parent company and the entities it controls. All inter-company transactions andbalances within the Company have been eliminated upon consolidation.Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and amountsof revenues and expenses for the reporting period. Actual results could differ from those estimates. The most significant estimates relate to fair values of share-based awards, financial instruments, intangible assets and goodwill, useful lives of property and equipment and intangible assets, income taxes,contingencies, accounts receivable allowance, and impairment assessments. The Company bases its estimates on historical experience and on various otherassumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.Foreign Currency Translation The functional currency of the Company's parent company is the U.S. dollar. The functional currency of the Company's operating subsidiaries domiciledin Russia is the Russian ruble. TheF-8 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Company has elected the Russian ruble as its reporting currency. All balance sheet items are translated into Russian rubles based on the exchange rate on thebalance sheet date and revenue and expenses are translated at weighted average rates of exchange. Translation gains and losses are recorded as currencytranslation adjustments in other comprehensive income. Foreign exchange transaction gains and losses are included in other income, net in theaccompanying consolidated statements of income.Convenience Translation Translations of amounts from RUR into U.S. dollars for the convenience of the reader have been made at the exchange rate of RUR 56.2584 to $1.00, theprevailing exchange rate as of December 31, 2014. No representation is made that the RUR amounts could have been, or could be, converted into U.S. dollarsat such rate.Certain Risks and Concentrations The Company's revenues are principally derived from online advertising, the market for which is highly competitive and rapidly changing. Significantchanges in this industry or changes in users' internet preferences or advertiser spending behavior could adversely affect the Company's financial position andresults of operations. In addition, the Company's principal business activities are within the Russian Federation. Laws and regulations affecting businesses operating in theRussian Federation are subject to frequent changes, which could impact the Company's financial position and results of operations. The majority of the Company's revenue is collected on a prepaid basis; credit terms are extended to major sales agencies and to larger loyal clients.Accounts receivable are typically unsecured and are derived from revenues earned from customers located in the Russian Federation. No individual customer or groups of affiliated customers represented more than 10% of the Company's revenues or accounts receivable in 2012, 2013,and 2014. Financial instruments that potentially subject the Company to a significant concentration of credit risk consist, in addition to accounts receivable,primarily of cash, cash equivalents, debt securities and term deposits. The primary focus of the Company's investment strategy is to preserve capital and meetliquidity requirements. The Company's investment policy addresses the level of credit exposure by working with different geographically diversified banking institutions,subject to their conformity to an established minimum credit rating for banking relationships. To manage the risk exposure, the Company maintains itsportfolio of investments in a variety of highly-rated debt instruments issued by financial institutions, term deposits and money market funds.F-9 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Revenue Recognition The Company recognizes revenues when the services have been rendered, the price is fixed or determinable, persuasive evidence of an arrangementexists, and collectability is reasonably assured. Revenue is recorded net of value added tax ("VAT"). The Company's principal revenue streams and their respective accounting treatments are discussed below:Advertising Revenues The Company's advertising revenue is generated from serving both text-based and display ads on its own websites and on Yandex ad network members'websites. Advance payments received by the Company from advertisers are recorded as deferred revenue on the Company's consolidated balance sheets andrecognized as advertising revenues in the period services are provided. Advertising sales commissions that are paid to agencies are accounted for as an offset to revenues and amounted to RUR 2,631, RUR 3,171 and RUR3,594 ($63.9) in 2012, 2013 and 2014, respectively. In accordance with U.S. GAAP, the Company reports advertising revenue gross of fees paid to Yandex ad network members, because the Company is theprimary obligor to its advertisers and retains collection risk. The Company records fees paid to ad network members as traffic acquisition costs, a componentof cost of revenues. The Company recognizes advertising revenue based on the following principles:Text-Based Advertising The Company's Yandex.Direct service offers advertisers the ability to place text-based ads on Yandex and Yandex ad network member websites targetedto users' search queries or website content. The Company recognizes as revenues fees charged to advertisers as "click-throughs" occur. A "click-through"occurs each time a user clicks on one of the text-based ads that are displayed next to the search results or on the content pages of Yandex or Yandex adnetwork members' websites.Display Advertising The Company recognizes revenue from display advertising on its websites and on Yandex ad network member websites as "impressions" are delivered.An "impression" is delivered when an advertisement appears in pages viewed by users.Online Payment Commissions The Company recognized revenue from online payment commissions until the deconsolidation of Yandex.Money on July 4, 2013. Yandex.Moneyearned commissions from processing electronic payment transactions for its customers. Commission revenues resulting from processing an electronicpayment transaction were recognized once the transaction was complete.F-10 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Cost of Revenues Cost of revenues primarily consists of traffic acquisition costs. Traffic acquisition costs consist of amounts ultimately paid to Yandex ad networkmembers and to certain other partners ("distribution partners") who distribute the Company's toolbar and other products. These amounts are primarily basedon revenue-sharing arrangements with ad network members and distribution partners. Traffic acquisition costs are expensed as incurred. Cost of revenues alsoincludes expenses associated with the operation of the Company's data centers, including personnel costs, rent, utilities and bandwidth costs; as well ascontent acquisition costs.Product Development Expenses Product development expenses consist primarily of personnel costs incurred for the development of, enhancement to and maintenance of the Company'ssearch engine and other Company websites and technology platforms. Product development expenses also include rent and utilities attributable to officespace occupied by development staff.Advertising and Promotional Expenses The Company expenses advertising and promotional costs in the period in which they are incurred. For the years ended December 31, 2012, 2013 and2014, promotional and advertising expenses totaled approximately RUR 900, RUR 1,708 and RUR 1,741 ($30.9), respectively.Government Funds Contributions The Company makes contributions to governmental pension, medical and social funds on behalf of its employees. In Russia, the amount was calculatedusing a regressive rate (from 30% to 10% in 2012, 2013 and 2014) based on the annual compensation of each employee. These contributions are expensed asincurred.Share-Based Compensation The Company grants share options, share appreciation rights ("SARs") and restricted share units ("RSUs") (together, "Share-Based Awards") to itsemployees and consultants. The Company estimates the fair value of share options and SARs that are expected to vest using the Black-Scholes-Merton ("BSM") pricing model andrecognizes the fair value on a straight-line basis over the requisite servicing period. The assumptions used in calculating the fair value of Share-Based Awardsrepresent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factorschange and the Company uses different assumptions, the Company's share-based compensation expense could be materially different in the future. Inaddition, the Company is required to estimate the expected pre-vesting award forfeiture rate, as well as the probability that performance conditions that affectthe vesting of certain awards will be achieved, and only recognizes expense for those shares expected to vest. The Company estimates the forfeiture ratebased on historical experience of the Company's Share-Based Awards that are grantedF-11 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)and cancelled before vesting. If the Company's actual forfeiture rate is materially different from the Company's original estimate, the share-basedcompensation expense could be significantly different from what the Company has recorded in the current period. Changes in the estimated forfeiture ratecan have a significant effect on reported share-based compensation expense, as the effect of adjusting the forfeiture rate for all current and previouslyrecognized expense for unvested awards is recognized in the period the forfeiture estimate is changed. The Company measures the fair value of RSUs on the fair market values of the underlying share on the dates of grant. Cancellation of an award accompanied by the concurrent grant of a replacement award is accounted for as a modification of the terms of the cancelledaward ("modification awards"). The compensation costs associated with the modification awards are recognized if either the original vesting condition or thenew vesting condition has been achieved. Such compensation costs cannot be less than the grant-date fair value of the original award. The incrementalcompensation cost is measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date.Therefore, in relation to the modification awards, the Company recognizes share-based compensation over the vesting periods of the new awards, whichcomprises, (1) the amortization of the incremental portion of share-based compensation over the remaining vesting term and (2) any unrecognizedcompensation cost of the original award, using either the original term or the new term, whichever is higher for each reporting period. The Company uses the "with and without" approach in determining the order in which tax attributes are utilized. As a result, the Company onlyrecognizes a tax benefit from Share-Based Awards in additional paid-in capital, if an incremental tax benefit is realized after all other tax attributes currentlyavailable to the Company have been utilized.Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred taxassets and liabilities are individually classified as current and non-current based on the classification of the underlying balance sheet account or, if unrelatedto a balance sheet account, the timing of expected realization. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,it is more likely than not that some portion or all of the deferred tax assets will not be realized. Uncertain income tax positions are recognized in the financial statements if it is more likely than not that they will be sustained on audit by the taxauthorities, including resolution of related appeals or litigation processes, if any.F-12 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) These tax benefits are measured as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized income tax benefits within the income tax expense line in the accompanyingconsolidated statement of operations. Accrued interest and penalties are included within the other accrued liabilities line together with the unrecognizedincome tax benefits.Comprehensive Income Comprehensive income is defined as the change in equity during a period from non-owner sources. U.S. GAAP requires the reporting of comprehensiveincome in addition to net income. Comprehensive income of the Company includes net income and foreign currency translation adjustments. For the yearsended December 31, 2012, 2013 and 2014 total comprehensive income included, in addition to net income, the effect of translating the financial statementsof the Company's legal entities domiciled outside of Russia into Russian rubles. Accumulated other comprehensive income of RUR 2,042 as of December 31, 2013 and RUR 1,023 ($18.2) as of December 31, 2014 solely comprisescumulative foreign currency translation adjustments.Fair Value of Financial Instruments Financial instruments carried on the balance sheet include cash and cash equivalents, term deposits, restricted cash, investments in debt and equitysecurities, accounts receivable, loans to employees, accounts payable, accrued liabilities and convertible debt. The carrying amounts of cash and cashequivalents, short-term deposits, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due tothe short-term nature of those instruments. Accordingly, no credit valuation adjustment has been recorded in the consolidated financial statements for anyperiod presented.Term Deposits Bank deposits are classified depending on their original maturity as (i) cash and cash equivalents if the original maturities are three months or less;(ii) current term deposits if the original maturities are more than three months, but no more than one year; and (iii) non-current term deposits if the originalmaturities are more than one year.Investments in Debt Securities As the Company has both the positive intent and the ability to hold debt securities to maturity, the Company's investments in debt securities areclassified as held to maturity and are measured and presented at amortized cost. The interest related to investments in debt securities is reported as a part ofinterest income in the consolidated statements of income. The Company evaluates the investments periodically for possible other-than-temporary impairment. A decline of fair value below amortized costs ofdebt securities is considered an other-than-temporaryF-13 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)impairment if the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security beforerecovery of the entire amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized costbasis is recognized in earnings. Regardless of the Company's intent or requirement to sell a debt security, an impairment is considered other-than-temporary ifthe Company does not expect to recover the entire amortized cost basis; in those instances, a credit loss equal to the difference between the present value ofthe cash flows expected to be collected based on credit risk and the amortized cost basis of the debt security is recognized in earnings.Investments in Equity Securities Investments in the stock of entities in which the Company can exercise significant influence but does not own a majority equity interest or otherwisecontrol are accounted for using the equity method. The Company records its share of the results of these companies within the other income, net, line on theconsolidated statements of income. Investments in the non-marketable stock of entities in which the Company can exercise little or no influence areaccounted for using the cost method. Both equity and cost method accounted investments are included in investments in non-marketable equity securities onthe consolidated balance sheets. The Company's marketable equity securities are classified as trading and are reported at fair value, with change in value recognized in net income. The Company reviews its investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that thecarrying value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to further analysis todetermine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the investment. The determination of fair value ofthe investment involves considering factors such as current economic and market conditions, the operating performance of the companies including currentearnings trends and forecasted cash flows, and other company and industry specific information. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income, net and a new cost basis in the investment is established.Accounts Receivable, Net Accounts receivable are stated at their net realizable value. The Company provides an allowance for doubtful accounts based on management's periodicreview for recoverability of accounts receivable from customers and other receivables. The Company evaluates the collectability of its receivables basedupon various factors, including the financial condition and payment history of major customers, an overall review of collections experience of other accountsand economic factors or events expected to affect the Company's future collections.F-14 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Property and Equipment Property and equipment are recorded at cost and depreciated over their useful lives. All capital expenditures incurred before property and equipment areready for their intended use are capitalized as assets not yet in use. Depreciation and amortization is computed under the straight-line method using estimated useful lives as follows: Land is not depreciated. Depreciation of assets included in assets not yet in use commences when they are ready for the intended use.Goodwill and Other Acquired Intangible Assets Goodwill represents the excess of purchase consideration over the Company's share of fair value of the net assets of acquired businesses. Goodwill is notsubject to amortization but is tested for impairment at least annually. Intangible assets with definite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes incircumstances indicate an asset's carrying value may not be recoverable. The Company currently amortizes acquired intangible assets with definite livesusing the straight-line method and estimated useful lives of assets ranging from 1.0 to 15.0 years, with a weighted-average life of 7.7 years:F-15 Estimated useful livesServers and network equipment 3 yearsInfrastructure systems 3 - 10 yearsOffice furniture and equipment 3 yearsBuildings 10 - 20 yearsLeasehold improvements the shorter of 5 years or the remaining period of the lease termOther equipment 3 - 5 yearsPurchased technologies andlicenses the shorter of 5 years or the underlying license terms with a weighted-average life of4.1 years Estimated useful livesContent and software 1.0 - 10.0 yearsCustomer relationships 1.1 - 15.0 yearsPatents and licenses 3.4 - 7.1 yearsNon-compete agreements 3.0 - 4.0 yearsTrade names and domain names 7.0 - 10.0 yearsWorkforce 4.0 years Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Impairment of Long-lived Assets Goodwill is reviewed for impairment as of the end of each fiscal year. The Company performs a qualitative assessment to determine whether furtherimpairment testing on goodwill is necessary. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fairvalue of a reporting unit is less than its carrying amount, a quantitative impairment test is required. Otherwise, no further testing is required. The quantitativeimpairment test is performed by comparing the carrying value of each reporting unit's net assets (including allocated goodwill) to the fair value of those netassets. If the reporting unit's carrying amount is greater than its fair value, then a second step is performed whereby the portion of the fair value that relates tothe reporting unit's goodwill is compared to the carrying value of that goodwill. The Company recognizes a goodwill impairment charge for the amount bywhich the carrying value of goodwill exceeds the fair value. The Company did not recognize any impairment loss in respect of goodwill for the years endedDecember 31, 2012, 2013 and 2014 respectively. The Company evaluates the carrying value of long-lived assets other than goodwill for impairment whenever events or changes in circumstancesindicate that the carrying amounts of the assets may not be recoverable. When such a determination is made, management's estimate of undiscounted cashflows to be generated by the assets is compared to the carrying value of the assets to determine whether impairment is indicated. If impairment is indicated,the amount of the impairment recognized in the consolidated financial statements is determined by estimating the fair value of the assets and recording a lossfor the amount that the carrying value exceeds the estimated fair value. This fair value is usually determined based on estimated discounted cash flows.Recently Adopted Accounting Pronouncements Effective January 1, 2014, the Company adopted the Financial Accounting Standards Board ("FASB") accounting standards update on presentation of anunrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The adoption of this update did nothave a significant impact on the Company's consolidated financial position, results of operations, cash flows or disclosures. Effective January 1, 2014, the Company adopted FASB accounting standards update on parent's accounting for the cumulative translation adjustmentupon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The adoption of theseamendments did not have a material impact on the Company's consolidated balance sheet or results of operations.Effect of Recently Issued Accounting Pronouncements In April 2014, the FASB issued an accounting standards update on reporting discontinued operations and disclosures of disposals of components of anentity that changes the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements.Under the new guidance, a discontinued operation is defined as: (i) a disposal of a component or group of components that is disposed of or is classified asheld for sale thatF-16 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (ii) an acquired business or nonprofit activitythat is classified as held for sale on the date of acquisition. The standard states that a strategic shift could include a disposal of (i) a major geographical area ofoperations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. The guidance is effective prospectivelyfor reporting periods beginning on or after December 15, 2014 and interim periods within that year. The Company does not expect the adoption of thisupdate to have a material effect on its financial statements. In May 2014, the FASB issued an accounting standards update on revenue from contracts with customers that will replace all current U.S. GAAPguidance on this topic and eliminate all industry-specific guidance. The new guidance (i) removes inconsistencies, and weaknesses in revenue requirements,(ii) provides a more robust framework for addressing revenue issues, (iii) improves comparability of revenue recognition practices across entities, industries,jurisdictions, and capital markets, (iv) provides more useful information to users of financial statements through improved disclosure requirements, and(v) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The core principle is that an entityshould recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entityexpects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2016including interim periods within that reporting period. The Company has not yet selected a transition method and is currently evaluating the impact ofadopting this new accounting standard on its financial statements and related disclosures. In June 2014, the FASB issued an accounting standards update on accounting for share-based payments when the terms of an award provide that aperformance target could be achieved after the requisite service period that applies to all reporting entities that grant their employees share-based paymentsin which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is the casewhen an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved andstill be eligible to vest in the award if and when the performance target is achieved. The amendments require that a performance target that affects vesting andthat could be achieved after the requisite service period to be treated as a performance condition. A reporting entity should apply existing guidance as itrelates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected inestimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomesprobable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite servicehas already been rendered. The adoption of this guidance is effective for reporting periods beginning on or after December 15, 2015. The Company does notexpect the adoption of this update to have a material effect on its financial statements. In August 2014, the FASB issued an accounting standards update on disclosure of uncertainties about an entity's ability to continue as a going concernthat requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that areF-17 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term "substantial doubt", (2) require an evaluation everyreporting period including interim periods, (3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosureswhen substantial doubt is alleviated as a result of the consideration of management's plans, (5) require an express statement and other disclosures whensubstantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available tobe issued). The adoption of this guidance is effective for the reporting periods ending after December 15, 2016. The Company does not expect the adoptionof this update to have a material effect on its financial statements. In January 2015, the FASB issued an accounting standards update on extraordinary and unusual items that eliminates from US GAAP the concept ofextraordinary items. The adoption of this guidance is effective for reporting periods beginning on or after December 15, 2015. The Company does not expectthe adoption of this update to have a material effect on its financial statements. In February 2015, the FASB issued an accounting standards update which significantly changes the consolidation analysis for variable interest entitiesrequired under US GAAP. The adoption of this guidance is effective for reporting periods beginning on or after December 15, 2015. The Company does notexpect the adoption of this update to have a material effect on its financial statements. In April 2015, the FASB issued an accounting standards update which changes the presentation of issuance costs to a direct deduction from the relateddebt liability rather than an asset. The adoption of this guidance is effective for reporting periods beginning on or after December 15, 2015 with earlyadoption permitted. The Company is currently evaluating the impact of adopting this new accounting standard on its financial statements and relateddisclosures.3. NET INCOME PER SHARE Basic net income per Class A and Class B ordinary share for the years ended December 31, 2012, 2013 and 2014 is computed on the basis of theweighted average number of ordinary shares outstanding using the two class method. Basic net income per share is computed using the weighted averagenumber of ordinary shares outstanding during the period, including restricted shares. Diluted net income per ordinary share is computed using the effect ofthe outstanding Share-Based Awards calculated using the "treasury stock" method. The computation of the diluted net income per Class A share assumes the conversion of Class B shares, while the diluted net income per Class B sharedoes not assume the conversion of those shares. The net income per share amounts are the same for Class A and Class B shares because the holders of eachclass are legally entitled to equal per share distributions whether through dividends or in liquidation. The number of Share-Based Awards excluded from thediluted net income per ordinary share computation, because their effect was anti-dilutive for the years ended December 31, 2012, 2013 and 2014, was1,139,956, 1,346,000 and 1,558,500, respectively. The Company's outstanding convertible debt provides for a flexible settlement feature. The Company intends to settle upon conversion the principalamount of the debt for cash and theF-18 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)3. NET INCOME PER SHARE (Continued)conversion premium for Class A shares. The convertible debt is included in the calculation of diluted net income per share if its inclusion is dilutive underthe treasury stock method. The convertible debt was anti-dilutive in the years ended December 31, 2013 and December 31, 2014. The components of basic and diluted net income per share were as follows:4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONSAcquisitions in 2014Kitlocate In March 2014, the Company completed the acquisition of a 100% ownership interest in KitLocate Ltd. ("KitLocate"), the developer of an energy-efficient geolocation technology for mobile devices, for a cash consideration of up to $10.2 (RUR 371 at the exchange rate as of the acquisition date),including $4.0 (RUR 145 at the exchange rate as of the acquisition date) paid in full upon closing of the deal, $2.3 (RUR 84 at the exchange rate as of theacquisition date) of earn-out paymentsF-19 Year ended December 31, 2012 2013 2014 Class A Class B Class A Class B Class A Class A Class B Class B RUR RUR RUR RUR RUR $ RUR $ Net income, allocated forbasic 4,564 3,659 9,674 3,800 13,300 236.4 3,720 66.1 Reallocation of netincome as a result ofconversion of Class Bto Class A shares 3,659 — 3,800 — 3,720 66.1 — — Reallocation of netincome to Class Bshares — 22 — 37 — — 32 0.6 Net income, allocated fordiluted 8,223 3,681 13,474 3,837 17,020 302.5 3,752 66.7 Weighted average ordinaryshares outstanding—basic 181,039,148 145,171,800 234,522,372 92,135,406 249,543,232 249,543,232 69,793,550 69,793,550 Dilutive effect of: Conversion of Class B toClass A shares 145,171,800 — 92,135,406 — 69,793,550 69,793,550 — — Ordinary Share-BasedAwards 9,479,648 5,129,207 7,913,434 3,138,966 6,273,495 6,273,495 1,988,808 1,988,808 Weighted average ordinaryshares outstanding—diluted 335,690,596 150,301,007 334,571,212 95,274,372 325,610,277 325,610,277 71,782,358 71,782,358 Net income per shareattributable to ordinaryshareholders: Basic 25.21 25.21 41.25 41.25 53.30 0.95 53.30 0.95 Diluted 24.50 24.50 40.27 40.27 52.27 0.93 52.27 0.93 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)on the achievement of certain distribution milestones, and $3.9 (RUR 142 at the exchange rate as of the acquisition date) paid to an escrow account that willbe gradually released during a period of four years after the completion date to the KitLocate's founders subject to their continued employment. TheCompany has not recorded the contingent payments related to the continued employment as purchase price consideration but instead records them ascompensation expense on a straight-line basis as the former KitLocate's shareholders completed their requisite service periods. Set out below is the condensed balance sheet of KitLocate as of March 12, 2014, reflecting an allocation of the purchase price to net assets acquired: The RUR 158 ($2.8) assigned to goodwill is attributable to the Russian Search and Portal reportable segment and primarily arises due to an assembledworkforce that does not qualify for separate recognition and specific synergies that result from the distribution capabilities of the Company. Of the RUR 59($1.0) assigned to intangible assets, RUR 30 ($0.5) relates to pending patents, RUR 20 ($0.4) relates to software and RUR 9 ($0.1) to non-competeagreements. The results of operations of KitLocate for the period prior to acquisition would not have had a material impact on the Company's results of operations forthe years ended December 31, 2013 and 2014. Accordingly, no pro forma financial information is presented. The results of operations of KitLocate did nothave a material impact on the Company's results of operations for the year December 31, 2014.Auto.ru In August 2014, the Company completed the acquisition of a 100% ownership interest in Auto.ru Group ("Auto.ru"), one of the leading online autoclassifieds businesses in Russia, for cash consideration of $178.4 (RUR 6,428 at the exchange rate as of the acquisition date) paid in full upon closing of thedeal, including $14.0 (RUR 504 at the exchange rate as of the acquisition date) paid into an escrow account. The amount in escrow will be paid to the sellersin two instalments with respect toF-20 March 12, 2014 RUR ASSETS: Cash and cash equivalents 4 Current assets 1 Intangible assets 59 Goodwill 158 Total assets 222 LIABILITIES: Current liabilities 4 Deferred tax liabilities 15 Net assets 203 Total purchase consideration 203 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)50% of the escrow amount on the date falling 18 months after the completion date and with respect to the remaining 50% on the date falling 43 months afterthe completion date, assuming no warranty claims. Set out below is the condensed balance sheet of Auto.ru as of August 19, 2014, reflecting a preliminary allocation of the purchase price to net assetsacquired: The completion of the purchase price allocation is subject to completion of the intangible assets valuation. The RUR 5,168 ($91.9) assigned to goodwillis attributable to the Other reportable segment and primarily arises due to an assembled workforce that does not qualify for separate recognition and specificsynergies that result from convergence with other vertical aggregators developed by the Company and the Company's distribution capabilities. Of the RUR1,400 ($24.9) assigned to intangible assets, approximately RUR 926 ($16.5) relates to trade names that will be amortized over a period of 10.0 years. Theremaining RUR 474 ($8.4) assigned to intangible assets represents customer relationships RUR 302 ($5.4), website and applications RUR 138 ($2.4), andportal content RUR 34 ($0.6). The results of operations of Auto.ru for the period prior to acquisition would not have had a material impact on the Company's results of operations forthe years ended December 31, 2013 and 2014. Accordingly, no pro forma financial information is presented. The results of operations of Auto.ru did not havea material impact on the Company's results of operations for the year December 31, 2014.ADFOX In September 2014, the Company completed the acquisition of assets and assumption of liabilities constituting a business of ADFOX LLC ("ADFOX"),operating an advertising technology platform thatF-21 August 19, 2014 RUR ASSETS: Cash and cash equivalents 204 Current assets 36 Property and equipment 16 Intangible assets 1,400 Goodwill 5,168 Total assets 6,824 LIABILITIES: Current liabilities 28 Non-current liabilities 80 Deferred tax liabilities 288 Net assets 6,428 Total purchase consideration 6,428 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)provides services for planning, managing and analysing advertising campaigns on the internet, for cash consideration of $11.3 (RUR 446 at the exchangerate as of the acquisition date), $8.5 (RUR 336 at the exchange rate as of the acquisition date) of which were paid upon closing of the deal. The amount of$2.8 (RUR 110 at the exchange rate as of the acquisition date) will be paid to the sellers in two tranches on the first and the second anniversary of thecompletion closing assuming no warranty claims. The acquisition is accounted for as a business combination. Set out below is the condensed balance sheet of ADFOX as of September 30, 2014, reflecting an allocation of the purchase price to net assets acquired: The RUR 296 ($5.3) assigned to goodwill is attributable to the Russian Search and Portal reportable segment and primarily arises due to an assembledworkforce that does not qualify for separate recognition and specific synergies that result from the application of the acquired technologies in the Company'sbusiness. Of the RUR 74 ($1.3) assigned to intangible assets, RUR 59 ($1.0) relates to software and website and RUR 15 ($0.3) relates to trade names. The results of operations of ADFOX for the period prior to acquisition would not have had a material impact on the Company's results of operations forthe years ended December 31, 2013 and 2014. Accordingly, no pro forma financial information is presented. The results of operations of ADFOX did not havea material impact on the Company's results of operations for the years ended December 31, 2013 and December 31, 2014.Other During the year ended December 31, 2014, the Company completed other acquisitions and purchases of intangible assets for total consideration ofapproximately RUR 347 ($6.2). In aggregate, RUR 215 ($3.8) was attributed to intangible assets, RUR 106 ($1.9) was attributed to goodwill, and RUR 26($0.5) was attributed to deferred tax assets. Goodwill is attributable to the Russian E-commerce reportable segment.F-22 September 30, 2014 RUR ASSETS: Property and equipment 2 Intangible assets 74 Deferred tax assets 74 Goodwill 296 Total assets 446 Net assets 446 Total purchase consideration 446 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)Acquisition in 2013KinoPoisk In October 2013, the Company completed the acquisition of a 100% ownership interest in KinoPoisk LLC and its subsidiary ("KinoPoisk"), operatingthe largest and most comprehensive Russian-language website dedicated to movies, television programs and celebrities, for cash consideration of $80.0(RUR 2,577 at the exchange rate as of the acquisition date) paid in full upon closing of the deal, including $3.0 (RUR 97 at the exchange rate as of theacquisition date) paid into an escrow account. The amount in escrow will be paid to the sellers on the second anniversary of the completion closing assumingno warranty claims. Set out below is the condensed balance sheet of KinoPoisk as of October 14, 2013, reflecting an allocation of the purchase price to the net assetsacquired: The RUR 2,140 assigned to goodwill is attributable to the Other reportable segment and primarily arises due to an assembled workforce that does notqualify for separate recognition and specific synergies that result from the distribution capabilities and market position of the Company. Of the RUR 440assigned to intangible assets, approximately RUR 224 relates to trade names and approximately RUR 135 relates to portal content that will be amortized overa period of 10.0 years. The remaining RUR 81 assigned to intangible assets represents website and applications (RUR 63), non-compete agreements (RUR14) and customer relationships (RUR 4). The results of operations of KinoPoisk for the period prior to acquisition would not have had a material impact on the Company's results of operations forthe years ended December 31, 2012 and 2013. Accordingly, no pro forma financial information is presented. The results of operations of KinoPoisk did nothave a material impact on the Company's results of operations for the years ended December 31, 2013 and December 31, 2014.F-23 October 14, 2013 RUR ASSETS: Cash and cash equivalents 39 Current assets 59 Property and equipment 3 Intangible assets 440 Goodwill 2,140 Non-current assets 1 Total assets 2,682 LIABILITIES: Current liabilities 20 Deferred tax liabilities 85 Net assets 2,577 Total purchase consideration 2,577 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)Disposal in 2013Yandex.Money In July 2013, the Company completed the sale of a 75% less one ruble interest in the charter capital of Yandex.Money to Sberbank for a cashconsideration of RUR 1,964 ($59.1 at the exchange rate as of the sale date). A gain on sale and deconsolidation of the subsidiary in the amount of RUR 2,035was recognized as other income, net. The Company retained a non-controlling interest (25% plus one ruble) and significant influence over Yandex.Money's business as its electronic moneysystem continues to be one of the primary payment means for the Company's advertising services. Accordingly, Yandex.Money's results of operations beforethe sale of a 75% less one ruble interest are classified within continuing operations and the remaining investment is accounted for under the equity methodwithin Investments in non-marketable equity securities. Yandex.Money's assets held for sale and liabilities related to assets held for sale as of December 31, 2012 and July 4, 2013 (the date of sale) consisted ofthe following:Acquisition in 2012Seismotech In July 2012, the Company completed the acquisition of a 25% ownership interest in Seismotech LLC ("Seismotech"), a Russian-based geophysical dataprocessing company, for RUR 27. The Company also has a 3-year option to buy another 25% interest in Seismotech at a fixed price that is accounted for atfair value (Notes 6 and 7). The Company exercises significant influence over Seismotech and accordingly accounts for this investment under the equitymethod.F-24 December 31,2012 July 4,2013 RUR RUR Assets held for sale Cash and cash equivalents 1,164 1,195 Term deposits 150 280 Funds receivable, net 190 192 Goodwill 378 378 Other 142 120 Total assets held for sale 2,024 2,165 Liabilities related to assets held for sale Funds payable and amounts due to customers 1,596 1,653 Other 23 52 Total liabilities related to assets held for sale 1,619 1,705 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS (Continued)Disposal in 2012Face.com In July 2012, the Company completed the sale of its ownership interest in Face.com, Inc. (formerly Vizi Information Labs Ltd. ("Vizi Labs")) to asubsidiary of Facebook, Inc. ("Facebook") for cash consideration of RUR 174 and 142,479 shares of Facebook. A gain on sale in the amount of RUR 234 wasrecognized as other income, net.5. CONSOLIDATED FINANCIAL STATEMENTS DETAILSCash and Cash Equivalents, Restricted Cash Cash and cash equivalents as of December 31, 2013 and 2014 consisted of the following: Non-current restricted cash as of December 31, 2013 consisted of the cash reserved in a special escrow account before lapse of the claim period forwarranties received in relation to the acquisition of KinoPoisk (Note 4). Non-current restricted cash as of December 31, 2014 consisted of the cash reserved ina special escrow account before lapse of the claim period for warranties received in relation to the acquisitions of Auto.ru (Note 4) in the amount of RUR 788($14.0) and Kitlocate (Note 4) in the amount of RUR 119 ($ 2.1) and other restricted cash of RUR 25 ($0.5).Accounts Receivable, Net Accounts receivable as of December 31, 2013 and 2014 consisted of the following:F-25 2013 2014 2014 RUR RUR $ Cash 2,293 3,617 64.2 Cash equivalents: Bank deposits 16,730 9,775 173.8 Investments in money market funds 14,371 4,253 75.6 Total cash and cash equivalents 33,394 17,645 313.6 2013 2014 2014 RUR RUR $ Trade receivables 2,858 3,835 68.1 Allowance for doubtful accounts (73) (132) (2.3)Total accounts receivable, net 2,785 3,703 65.8 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)5. CONSOLIDATED FINANCIAL STATEMENTS DETAILS (Continued) Movements in the allowance for doubtful accounts are as follows:Other Current Assets Other current assets as of December 31, 2013 and 2014 consisted of the following: Restricted cash as of December 31, 2014 consisted of the cash reserved in a special escrow account before lapse of the claim period for warrantiesreceived in relation to the acquisition of KinoPoisk and Kitlocate Ltd. to be released to the founders in 2015 in the amount of RUR 169 ($3.0) and RUR 92($1.6), respectively (Note 4) and other cash restricted on guarantee and pledge accounts for RUR 304 ($5.4).Other Non-current Assets Other non-current assets as of December 31, 2013 and 2014 consisted of the following:F-26 2012 2013 2014 2014 RUR RUR RUR $ Balance at the beginning of the period 89 75 73 1.3 Charges to expenses 17 21 75 1.3 Utilization (31) (23) (16) (0.3)Balance at the end of the period 75 73 132 2.3 2013 2014 2014 RUR RUR $ Interest receivable 423 1,811 32.2 VAT reclaimable 704 866 15.4 Restricted cash — 565 10.0 Loans to employees — 205 3.6 Other 205 289 5.2 Total other current assets 1,332 3,736 66.4 2013 2014 2014 RUR RUR $ Interest receivable 728 332 5.9 Loans to employees 447 563 10.0 Loans granted 246 430 7.6 VAT reclaimable 116 278 4.9 Other receivables 4 2 0.1 Total other non-current assets 1,541 1,605 28.5 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)5. CONSOLIDATED FINANCIAL STATEMENTS DETAILS (Continued)Investments in Debt Securities Investments in debt securities as of December 31, 2013 and 2014 consisted of the following:Investments in Equity Securities Investments in non-marketable equity securities as of December 31, 2013 and 2014 consisted of the following: The Company exercises significant influence over Seismotech and Yandex.Money with 25% ownership interest in each of these entities and accordinglyaccounts for these investments under the equity method. The Company records its share of the results of these investees in the amount of loss of RUR 6 andincome of RUR 48 ($0.8) for the years ended December 31, 2013 and 2014, respectively, within the other income, net line on the consolidated statements ofincome. The Company does not exercise significant influence over Blekko and accordingly accounts for this investment under the cost method. In the year endedDecember 31, 2014, the Company identified certain adverse external and internal events indicating that the decline in fair value of its investment inBlekko Inc. is now other-than-temporary and recorded an impairment charge of RUR 700 ($12.4) within the other income, net line on the consolidatedstatements of income. Marketable securities of RUR 87 as of December 31, 2013 were comprised of shares of Facebook received in connection with the sale of Face.com(Note 4). The securities were sold during 2014, and as such a balance of nil is recorded as of December 31, 2014.F-27 2013 2014 2014 RUR RUR $ Russian government bonds — 567 10.1 Russian corporate bonds — 2,557 45.4 Total investments in debt securities — 3,124 55.5 2013 2014 2014 RUR RUR $ Yandex.Money (Note 4) 583 631 11.2 Seismotech LLC (Note 4) 36 36 0.6 Blekko Inc 605 — — Other 26 204 3.7 Total investments in non-marketable equity securities 1,250 871 15.5 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)5. CONSOLIDATED FINANCIAL STATEMENTS DETAILS (Continued)Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities as of December 31, 2013 and 2014 comprise the following:Reclassifications Out of Accumulated Other Comprehensive Income Reclassifications of losses out of accumulated other comprehensive income for the years ended December 31, 2012, 2013 and 2014 were as follows: For the year ended December 31, 2013, the reclassification resulted from the sale of a 75% less one ruble interest in the charter capital of Yandex.Money(Note 4).6. DERIVATIVE FINANCIAL INSTRUMENTS The Company does not enter into derivative arrangements for hedging, trading or speculative purposes. However, some of the Company's contracts haveembedded derivatives that are bifurcated and accounted for separately from the host agreements. None of these derivatives are designated as hedginginstruments. The Company recognizes such derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value andrecords changes in the fair value of the derivatives in the accompanying consolidated statements of income as other income, net.F-28 2013 2014 2014 RUR RUR $ Trade accounts payable and accrued liabilities 3,298 4,449 79.1 Salary and other compensation expenses payable/accrued to employees 412 604 10.7 Total accounts payable and accrued liabilities 3,710 5,053 89.8 Location 2012 2013 2014 RUR RUR RUR $ Foreign Currency Translation Adjustments, net of tax of nil Other income, net — 54 — — Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)6. DERIVATIVE FINANCIAL INSTRUMENTS (Continued) The fair value of derivative instruments as of December 31, 2013 and 2014 is as follows: The effect of derivative instruments not designated as hedging instruments on income for the years ended December 31, 2012, 2013 and 2014 amountedto a loss of RUR 18, a gain of RUR 27 and a loss of RUR 7 ($0.1), respectively.7. FAIR VALUE MEASUREMENTS Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuationmethodologies in measuring fair value: Level 1—observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3—inputs for the asset or liability that are not based on observable market data (unobservable inputs).F-29 Balance Sheet Location 2013 2014 2014 RUR RUR $ Derivative assets: Equity purchase contracts Investments in non-marketable equity securities 22 8 0.1 Total derivative assets 22 8 0.1 Derivative liabilities: Foreign exchange contracts Other accrued liabilities 9 37 0.7 Total derivative liabilities 9 37 0.7 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)7. FAIR VALUE MEASUREMENTS (Continued) The fair value of financial assets and liabilities as of December 31, 2013 consisted of the following:F-30 Fair value measurement using Level 1 Level 2 Level 3 Total RUR RUR RUR RUR Assets Cash equivalents: Bank deposits(1) — 16,730 — 16,730 Investments in money market funds 14,371 — — 14,371 Term deposits, non-current — 15,298 — 15,298 Marketable securities, current(2) 87 — — 87 Restricted cash 104 — — 104 Loans to employees — 447 — 447 Loans granted — 278 — 278 Derivative contracts (Notes 4, 6)(2) — — 22 22 14,562 32,753 22 47,337 Liabilities Convertible debt — 21,647 — 21,647 Derivative contracts(2) — 9 — 9 — 21,656 — 21,656 (1)Bank deposits with original maturities of three months or less are included in cash equivalents. Bank deposits with maturitiesof more than three months are classified as term deposits. (2)Amounts are measured at fair value on a recurring basis. Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)7. FAIR VALUE MEASUREMENTS (Continued) The fair value of financial assets and liabilities as of December 31, 2014 consisted of the following: The fair values of the Company's Level 1 financial assets are based on quoted market prices of identical underlying securities. The fair values of theCompany's Level 2 financial assets and liabilities are based on quoted prices and market observable data of similar instruments. There were no transfers of financial assets and liabilities between the levels of the fair value hierarchy during the years ended December 31, 2012, 2013and 2014. The total gains attributable to bank deposits and investments in money market funds amounted to RUR 910, RUR 1,651 and RUR 1,840 ($32.7) in 2012,2013 and 2014, respectively. Such amounts are included in interest income in the consolidated statements of income. The Company had no other financial assets or liabilities measured at fair value on a recurring basis during the years ended December 31, 2012, 2013 and2014. The Company measures at fair value nonfinancial assets and liabilities recognized as a result of business combinations.F-31 Fair value measurement using Level 1 Level 2 Level 3 Total Total RUR RUR RUR RUR $ Assets Cash equivalents: Bank deposits(1) — 9,775 — 9,775 173.8 Investments in money market funds 4,253 — — 4,253 75.6 Term deposits, current — 5,863 — 5,863 104.2 Term deposits, non-current — 24,775 — 24,775 440.4 Restricted cash 1,497 — — 1,497 26.6 Investments in debt securities — 3,089 — 3,089 54.9 Loans to employees — 768 — 768 13.6 Loans granted — 522 — 522 9.2 Derivative contracts (Notes 4, 6)(2) — — 8 8 0.1 5,750 44,792 8 50,550 898.4 Liabilities Convertible debt — 25,294 — 25,294 449.6 Contingent consideration(2) — — 85 85 1.5 Derivative contracts(2) — 37 — 37 0.7 — 25,331 85 25,416 451.8 (1)Bank deposits with original maturities of three months or less are included in cash equivalents. Bank deposits with maturitiesof more than three months are classified as term deposits. (2)Amounts are measured at fair value on a recurring basis. Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)7. FAIR VALUE MEASUREMENTS (Continued) The Company measures the fair value of investments in debt instruments carried at amortized cost, non-current term deposits and convertible debt fordisclosure purposes. The carrying amounts and fair values of debt securities and convertible debt as of December 31, 2013 and 2014 were as follows: The Company did not estimate the fair value of non-marketable equity investments carried at cost because it did not identify events or changes incircumstances that might have had a significant adverse effect on the fair value of these investments. Furthermore, the Company believes it is not practicableto estimate the fair value of these equity investments since quoted market prices are not available and the cost of obtaining independent valuations appearsexcessive considering the materiality of the investments to the Company.8. PROPERTY AND EQUIPMENT, NET Property and equipment, net of accumulated depreciation and amortization, as of December 31, 2013 and 2014 consisted of the following: Assets not yet in use primarily represent computer equipment, infrastructure systems and other assets under installation, including related prepayments,and comprise the cost of the assets and otherF-32 2013 2014 Carrying amount Fair value Carrying amount Fair value RUR RUR RUR $ RUR $ Investments in debt securities — — 3,124 55.5 3,089 54.9 Term deposits, non-current 15,180 15,298 25,663 456.2 24,775 440.4 Convertible debt (16,429) (21,647) (26,325) (467.9) (25,294) (449.6)Total (1,249) (6,349) 2,462 43.8 2,570 45.7 2013 2014 2014 RUR RUR $ Servers and network equipment 9,739 14,530 258.3 Infrastructure systems 3,409 4,449 79.1 Land and buildings 1,172 3,735 66.4 Office furniture and equipment 1,002 1,323 23.5 Leasehold improvements 611 686 12.2 Other equipment 64 66 1.2 Assets not yet in use 1,599 2,032 36.1 Purchased technologies and licenses 2,466 3,968 70.5 Total 20,062 30,789 547.3 Less: accumulated depreciation and amortization (10,333) (13,682) (243.2)Total property and equipment, net 9,729 17,107 304.1 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)8. PROPERTY AND EQUIPMENT, NET (Continued)direct costs applicable to purchase and installation. Leasehold improvements in the amount of RUR 13 and RUR 46 ($0.8) are included in assets not yet inuse as of December 31, 2013 and 2014, respectively. Depreciation expenses related to property and equipment, except for purchased technologies and licenses, for the years ended December 31, 2012, 2013and 2014 amounted to RUR 2,498, RUR 3,132 and RUR 3,480 ($61.9), respectively. Amortization expenses related to purchased technologies and licensesfor the years ended December 31, 2012, 2013 and 2014 amounted to RUR 314, RUR 452 and RUR 762 ($13.5), respectively. The accumulated amortization of purchased technologies and licenses included in property and equipment was RUR 904 and RUR 1,608 ($28.6) as ofDecember 31, 2013 and 2014, respectively. Estimated amortization expense over the next five years for purchased technologies and licenses included inproperty and equipment, net as of December 31, 2014 are as follows:9. GOODWILL AND INTANGIBLE ASSETS, NET In 2014, the Company completed several business combination transactions, including Kitlocate, Auto.ru and ADFOX (Note 4), accounted for under theacquisition method and resulted in the recognition of RUR 5,728 ($101.8) of acquired goodwill. The Company has also revised its goodwill allocationfollowing the change in operating and reportable segments (Note 15) and restated the prior year disclosure to conform with current year presentation. As aconsequence of the change in segments and reporting units, goodwill has been reallocated between reporting units using the relative fair value allocationapproach. Reporting units for the Russian Search and Portal and Russian E-commerce segments have been determined to be the same level as their respectivesegments due to the absence of regular reporting at any lower level within these segments. Goodwill allocated to the Media Services operating segment(included in Other) has further been allocated to the reporting unit Cinema and TVF-33 RUR $ For the year ending December 31, 2015 849 15.1 For the year ending December 31, 2016 703 12.5 For the year ending December 31, 2017 424 7.5 For the year ending December 31, 2018 234 4.2 For the year ending December 31, 2019 149 2.6 Thereafter 1 — Total 2,360 41.9 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)9. GOODWILL AND INTANGIBLE ASSETS, NET (Continued)and goodwill allocated to the Classified Aggregators operating segment (included in Other) to the reporting unit Auto. The changes in the carrying amount ofgoodwill are as follows: The Company has not recorded any impairment on goodwill to date. Intangible assets, net of amortization, as of December 31, 2013 and 2014 consisted of the following intangible assets primarily acquired as part ofbusiness combinations: Amortization expenses of intangible assets for the years ended December 31, 2012, 2013 and 2014 were RUR 139, RUR 111 and RUR 242 ($4.3),respectively.F-34 RussianSearch andPortal RussianE-commerce Other Total Total RUR RUR RUR RUR $ Balance as of January 1, 2013 750 — — 750 Goodwill acquired — — 2,140 2,140 Goodwill disposed — — — — Foreign currency translation adjustment 25 — — 25 Balance as of December 31, 2013 775 — 2,140 2,915 51.8 Goodwill acquired 454 106 5,168 5,728 101.8 Goodwill disposed (75) — — (75) (1.3)Foreign currency translation adjustment 352 — — 352 6.3 Balance as of December 31, 2014 1,506 106 7,308 8,920 158.6 2013 2014 Cost Less:Accumulatedamortization Netcarryingvalue Cost Less:Accumulatedamortization Netcarryingvalue Netcarryingvalue RUR RUR RUR RUR RUR RUR $ Content and software 489 (173) 316 965 (385) 580 10.3 Patents and licenses 167 (106) 61 269 (147) 122 2.2 Customer relationships 71 (18) 53 417 (45) 372 6.6 Contracts with suppliers 23 (22) 1 — — — — Non-compete agreements 14 (1) 13 26 (8) 18 0.3 Trade names and domain names 224 (4) 220 1,181 (66) 1,115 19.8 Workforce — — — 232 (14) 218 3.9 Total intangible assets 988 (324) 664 3,090 (665) 2,425 43.1 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)9. GOODWILL AND INTANGIBLE ASSETS, NET (Continued) Estimated amortization expense over the next five years for intangible assets included in the accompanying consolidated balance sheet as ofDecember 31, 2014 are as follows:10. INCOME TAX Income taxes are computed in accordance with Russian Federation and Dutch tax laws. The taxable income of Yandex LLC was subject to federal andlocal income tax at a combined nominal rate of 20% for 2012, 2013 and 2014. Yandex N.V. is incorporated in the Netherlands, and its taxable profits weresubject to income tax at the rate of 25% in 2012, 2013 and 2014. Dividends paid to Yandex N.V. by its Russian subsidiaries are subject to a 5% dividend withholding tax, computed in accordance with the laws of theRussian Federation. Due to the so-called participation exemption, dividends distributed by the Company's Russian subsidiaries to Yandex N.V. are exemptfrom tax in the Netherlands. Provision for income taxes for the years ended December 31, 2012, 2013 and 2014 consisted of the following:F-35 RUR $ For the year ending December 31, 2015 427 7.6 For the year ending December 31, 2016 408 7.3 For the year ending December 31, 2017 340 6.0 For the year ending December 31, 2018 304 5.4 For the year ending December 31, 2019 222 3.9 Thereafter 724 12.9 Total 2,425 43.1 2012 2013 2014 2014 RUR RUR RUR $ Current provision for income tax—Russia (2,281) (3,325) (5,045) (89.7)Current provision for income tax—other 2 (111) (295) (5.2)Deferred income tax (expense)/ benefit—Russia (58) 175 (256) (4.6)Deferred income tax (expense)/ benefit—other (14) 22 141 2.5 Total provision for income taxes (2,351) (3,239) (5,455) (97.0) Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)10. INCOME TAX (Continued) The components of net income before income taxes for the years ended December 31, 2012, 2013 and 2014 are as follows: A significant majority of the Company's revenues and taxable income is generated in the Russian Federation. Yandex N.V., the Company's Dutch parentcompany, has no operations and primarily generates interest income and incurs corporate expenses. Therefore, the Company has reconciled its effective taxrate to its Russian statutory rate instead of to its Dutch statutory rate in the table below. The statutory Russian income tax rate reconciled to the Company'seffective income tax rate is as follows for the years ended December 31, 2012, 2013 and 2014: Movements in the valuation allowance are as follows:F-36 2012 2013 2014 2014 RUR RUR RUR $ Net income before income taxes—Russia 11,350 15,716 23,393 415.8 Net income before income taxes—other (776) 997 (918) (16.3)Total net income before income taxes 10,574 16,713 22,475 399.5 2012 2013 2014 2014 RUR RUR RUR $ Expected provision at Russian statutory income tax rate of 20% 2,115 3,343 4,495 79.9 Effect of: Tax on dividends 13 14 466 8.3 Non-deductible share-based compensation 75 146 229 4.1 Other expenses not deductible for tax purposes 183 83 97 1.7 Difference in foreign tax rates (39) (68) (160) (2.8)Participation exemption on sale of equity investments — (393) — — Other 4 (33) 78 1.4 Change in valuation allowance — 147 250 4.4 Provision for income taxes 2,351 3,239 5,455 97.0 2012 2013 2014 2014 RUR RUR RUR $ Balance at the beginning of the period — — (147) (2.6)Charges to expenses — (147) (250) (4.4)Foreign currency translation adjustment — — (17) (0.4)Balance at the end of the period — (147) (414) (7.4) ' Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)10. INCOME TAX (Continued) As of December 31, 2013 and 2014, the Company included accruals for unrecognized income tax benefits, including interest and penalties, totalingRUR 10 and RUR 62 ($1.1), respectively, as a component of other accrued liabilities, non-current and RUR 15 and RUR 69 ($1.2), respectively, as acomponent of accounts payable and accrued liabilities. RUR 97 ($1.7) of unrecognized income tax benefits, if recognized, would affect the effective tax rate.The interest and penalties recorded as part of the provision for income tax in 2012, 2013 and 2014 resulted in benefit of RUR 13, RUR 1 and expense of RUR30 ($0.5), respectively. The Company does not anticipate significant increases or decreases in unrecognized income tax benefits over the next twelve months. The Company believes it is more likely than not that all recognized income tax benefits will be sustained upon examination. However, income taxbenefits in the amount of RUR 86 ($1.5) have a reasonable possibility of successfully being challenged by the tax authorities. The Company does not believethat any of the recognized income tax benefits have a reasonable possibility of successfully being challenged by the tax authorities within twelve months ofDecember 31, 2014. A reconciliation of the total amounts of unrecognized income tax benefits is as follows:F-37 2012 2013 2014 2014 RUR RUR RUR $ Balance at the beginning of the period 97 25 25 0.4 Increases/(decreases) related to prior years tax positions (72) (3) 69 1.3 Increases related to current year tax positions 2 2 2 — Settlements — — — — Foreign currency translation adjustment (2) 1 1 — Balance at the end of the period 25 25 97 1.7 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)10. INCOME TAX (Continued) Temporary differences between the tax and accounting bases of assets and liabilities give rise to the following deferred tax assets and liabilities as ofDecember 31, 2013 and 2014: As of December 31, 2014, Yandex N.V. had net operating loss carryforwards ("NOLs") for Dutch income tax purposes of RUR 953 ($16.9). These NOLsexpire in 2020-2023 tax years. As of December 31, 2014, a benefit of RUR 109 ($1.9) related to the Dutch NOLs described above and RUR 150 ($2.7) relatedto other tax effects would be recorded by the Company in additional paid-in capital if and when realized. The Company did not provide for dividend withholding taxes on the unremitted earnings of its foreign subsidiaries in 2013 and earlier years becausethey were considered permanently reinvested outside of the Netherlands. Starting in 2014, the Company began to accrue for a 5% dividend withholding taxon the portion of the current year profit of the Company's principal Russian operating subsidiary that is considered not to be permanently reinvested inRussia. As of December 31, 2014, the cumulative amount of unremitted earnings upon which dividend withholding taxes have not been provided isapproximately RUR 44,787 ($796.1). The Company estimates that the amount of the unrecognized deferred tax liability related to these earnings isapproximately RUR 2,239 ($39.8). The tax years 2013 - 2014 remain open for examination by the Russian tax authorities with respect to the Company's principal Russian operatingsubsidiary, Yandex LLC. The tax years 2008 - 2014 remain open for examination by the Dutch tax authorities with respect to Yandex N.V.F-38 2013 2014 2014 RUR RUR $ Assets/(liabilities) arising from tax effect of: Deferred tax asset Accrued expenses 387 585 10.4 Net operating loss carryforward 324 457 8.1 Other 40 48 0.9 Valuation allowance (147) (414) (7.4)Total deferred tax asset 604 676 12.0 Deferred tax liability Convertible debt discount (802) (1,023) (18.2)Property and equipment (268) (36) (0.6)Intangible assets (155) (490) (8.7)Unremitted earnings — (475) (8.4)Other (41) (60) (1.1)Total deferred tax liability (1,266) (2,084) (37.0)Net deferred tax asset/(liability) (662) (1,408) (25.0)Net deferred tax assets, current 596 180 3.2 Net deferred tax assets, non-current 3 4 0.1 Net deferred tax liabilities, current (16) (5) (0.1)Net deferred tax liabilities, non-current (1,245) (1,587) (28.2) Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)11. CONVERTIBLE DEBT In December 2013, the Company issued and sold $600.0 (RUR 19,719 at the exchange rate as of sale date) in aggregate principal amount of 1.125%convertible senior notes due December 15, 2018 at par. The Company also granted to the initial purchasers a right to purchase up to an additional $90.0(RUR 2,981 at the exchange rate as of sale date) in aggregate principal amount of notes solely to cover over-allotments. In January 2014, the Company issuedand sold an additional $90.0 in aggregate principal amount of 1.125% convertible senior notes due December 15, 2018 (together, the "Notes") at par. Interestat an annual rate of 1.125% is payable semi-annually on June 15 and December 15 of each year, beginning on June 15, 2014. The Notes are convertible intocash, Class A shares of the Company or a combination of cash and Class A shares, at the Company's election, under circumstances described below, based onan initial conversion rate of 19.44 Class A shares per $1,000 principal amount of Notes (which represents an initial conversion price of approximately $51.45per share), subject to adjustment on the occurrence of fundamental change as defined in the agreement. The Notes are convertible, at the option of the holder,prior to June 15, 2018, if i) the last reported sale price of the Class A shares for at least 20 trading days (whether or not consecutive) during a period of 30consecutive trading days is greater than or equal to 130% of the conversion price on each applicable trading day; ii) during a 5 business day period after any10 consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was lessthan 98% of the product of the last reported sale price of our Class A shares and the conversion rate on each such trading day; iii) upon the occurrence ofspecified corporate events. On or after June 15, 2018, the Notes can be converted at the option of the holder regardless of the foregoing circumstances at anytime until the close of business on the business day immediately preceding the maturity date of the Notes. The Company will not have the right to redeem theNotes prior to maturity, except in connection with certain changes in tax laws. As of December 31, 2014, none of the conditions allowing the conversion ofthe Notes had been met. The net proceeds to the Company from the sale of the Notes (including over-allotments) were approximately RUR 22,479 ($683.1 at the exchange ratesas of sale date). Debt issuance costs were approximately RUR 228 ($4.1), of which RUR 38 ($0.7) was allocated to additional paid-in capital and RUR 190($3.4) was allocated to deferred issuance costs and will be amortized as interest expense over the term of the Notes. As of December 31, 2013 and 2014,unamortized deferred issuance cost was RUR 166 and RUR 202 ($3.6). The Company separately accounts for the liability and equity components of the Notes. The carrying value of the liability component of RUR 18,972($576.7 at the exchange rates as of sale date) was initially recognized at the present value of its cash flows using a discount rate of 4.84%, the Company'sestimated borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. Debt discount is amortized using theeffective interest method over the period from the origination date through the stated maturity date. The value of the equity component of RUR 3,728($113.3 at the exchange rates as of sale date) was calculated by deducting the fair value of the liability component from the initial proceeds ascribed to theconvertible debt instrument as a whole and was recorded as a debt discount. During 2014, the Company repurchased and retired $150.0 in aggregate principal amount of the outstanding Notes for a cash consideration ofRUR 6,414 ($114.0) and recorded a gain of RUR 548F-39 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)11. CONVERTIBLE DEBT (Continued)($9.7) on the extinguishment of the debt within the other income, net line on the consolidated statements of income. The carrying value of the Notes as of December 31, 2013 and 2014 consisted of the following: The remaining unamortized debt discount of RUR 4,055 ($72.1) as of December 31, 2014 will be amortized over the remaining life of the Notes, which isapproximately 4.0 years. The Company recognized RUR 25 and RUR 1,091 ($19.4) as interest expenses related to the contractual interest coupon, amortization of the debtdiscount and issuance expenses for the years ended December 31, 2013 and 2014, respectively. The effective interest rate on the liability component for theperiod was 5.1%.12. COMMITMENTS AND CONTINGENCIESLease and Other Commitments In December 2008, the Company signed an agreement for a ten-year lease of office space in Moscow. In April 2011, the Company entered into two morelease agreements to increase the size of its rented office space located in its headquarters complex in Moscow for the remaining period of the original lease. InApril 2014, the Company further extended its headquarters complex signing a seven-year lease agreement for additional office space and extending theexisting rent agreements to 2021. As of December 31, 2014, future minimum lease payments due under the Moscow leases and other non-cancellable operating leases for more than oneyear are as follows:F-40 2013 2014 2014 RUR RUR $ 1.125% Convertible Senior Notes due December 2018 19,638 30,380 540.0 Unamortized debt discount (3,209) (4,055) (72.1)Total convertible debt 16,429 26,325 467.9 Payments due in the years ending December 31, Moscowheadquarterslease Otherleases Total Total RUR RUR RUR $ 2015 3,466 590 4,056 72.2 2016 3,557 383 3,940 70.0 2017 3,681 239 3,920 69.7 2018 3,973 134 4,107 73.0 2019 and thereafter 9,323 7 9,330 165.8 Total 24,000 1,353 25,353 450.7 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)12. COMMITMENTS AND CONTINGENCIES (Continued) For the purposes of the disclosure above, the Company assumed no changes in the rented space or rental price specified in existing rental agreements asof the reporting date. For the years ended December 31, 2012, 2013 and 2014, rent expenses under operating leases totaled approximately RUR 1,656, RUR 1,790 andRUR 2,674 ($47.5), respectively. Additionally, the Company has entered into purchase commitments for other goods and services and acquisition of businesses, which total RUR 4,630($82.3) in 2015, RUR 1,969 ($35.0) in 2016, RUR 825 ($14.7) in 2017, RUR 1,281 ($22.8) in 2018, RUR 748 ($13.3) in 2019 and RUR 1,248 ($22.2)thereafter.Legal Proceedings In the ordinary course of business, the Company is a party to various legal proceedings, and subject to claims, certain of which relate to copyrightinfringement. The Company believes that its liability, if any, in all such pending litigation, other legal proceedings or other matters will not have a materialeffect upon its financial condition, results of operations or the liquidity of the Company.Environment and Current Economic Situation Emerging markets such as Russia are subject to different risks than more developed markets, including economic, political and social, and legal andlegislative risks. Laws and regulations affecting businesses continue to change rapidly and tax and regulatory frameworks are subject to varyinginterpretations. In particular, taxes are subject to review and investigation by a number of authorities authorized by law to impose fines and penalties. Although theCompany believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation, the above factors may create tax risks forthe Company. In addition to the obligations shown in the lease commitments section above, approximately RUR 97 ($1.7) of unrecognized tax benefits havebeen recorded as liabilities, and the Company is uncertain as to if or when such amounts may be settled (Note 10). Related to unrecognized tax benefits, theCompany has also recorded a liability for potential penalties of RUR 16 ($0.3) and interest of RUR 18 ($0.3). As of December 31, 2014, except for the incometax contingencies described above, the Company accrued RUR 185 ($3.3) for contingencies related to non-income taxes. Additionally, the Company hasidentified possible contingencies related to non-income taxes, which are not accrued. Such possible non-income tax contingencies could materialize andrequire the Company to pay additional amounts of tax. As of December 31, 2014, the Company estimates such contingencies related to non-income taxes tobe up to approximately RUR 78 ($1.4). The future economic direction of Russia is heavily influenced by the fiscal and monetary policies adopted by the government, together withdevelopments in the legal, regulatory, and political environment. Additionally, significant uncertainty exists around the current geopolitical situation in Ukraine. The United States, the European Union and othercountries have imposed economic sanctions on certain Russian government officials, other individuals and certain Russian companies in connection withF-41 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)12. COMMITMENTS AND CONTINGENCIES (Continued)recent developments in Ukraine and Crimea. Neither the Company, nor any of its Russian subsidiaries or other operations or assets, are a target of currentsanctions. However, there is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions, or the ultimateoutcome of the Ukrainian crisis. In 2014 and early 2015, Russia has experienced significant economic instability, characterized by substantial depreciation of its currency, sharpfluctuations of interest rates, a forecasted decline in gross domestic product in 2015 and a steep decline in the value of shares traded on its stock exchanges.Any continuing economic and political instability, potentially including continued or additional international economic sanctions, could have negativeimpact on advertising spending in future periods. Because Russia produces and exports large volumes of oil and gas, the Russian economy is particularlysensitive to the price of oil and gas on the world market.13. SHARE CAPITAL The Company has three authorized classes of ordinary shares, Class A, Class B and Class C with €0.01, € 0.10 and €0.09 par value, respectively. Theprincipal features of the three classes of ordinary shares are as follows:•Class A shares, par value €0.01 per share, entitled to one vote per share. The Class A shares share ratably with the Class B shares, on a paripassu basis, in any dividends or other distributions. •Class B shares, par value €0.10 per share, entitled to ten votes per share. Class B shares may only be transferred to qualified holders. In order tosell a Class B share, it must be converted into a Class A share. •Class C shares, par value €0.09 per share, entitled to nine votes per share. The Class C shares are entitled to a fixed nominal amount in theevent of a dividend or distribution limited to €0.01 per share in any one financial year if any such shares were to be outstanding on the recorddate for a dividend declaration. The Class C shares are used for technical purposes related to the conversion of Class B shares into Class Ashares. During the periods between conversion and cancellation, all Class C shares are held by Yandex Conversion Foundation (StichtingYandex Conversion). Yandex Conversion Foundation was incorporated under the laws of the Netherlands in October 2008 for the sole purposeof facilitating the conversion of Class B shares into Class A shares. Yandex Conversion Foundation is managed by a board of directorsappointed by the Company. On September 21, 2009, the Company issued a Priority Share to Sberbank. The holder of the Priority Share has the right to veto the accumulation ofstakes in the Company in excess of 25% by a single entity, a group of related parties or parties acting in concert. The holder of the Priority Share does nothave any rights to influence operating decisions of the Company nor is it entitled to a seat on the Company's Board. Transfer of the Priority Share requires theapproval of the Board. The Priority Share has been purchased by Sberbank at its par value of €1 and is entitled to a normal pro rata dividend distribution.F-42 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)13. SHARE CAPITAL (Continued) The Company's articles of association authorize a special class of preference shares as a form of an anti-takeover defense. The Company's Board has theirrevocable authority for a period of five years to issue preference shares and grant rights to subscribe for preference shares up to the Company's authorizedshare capital from time to time. This authority may be renewed by a resolution of the general meeting of shareholders for a subsequent period of up to fiveyears. The preference shares, if issued, would be entitled to receive preferential dividends at a rate of 12-month EURIBOR plus 200 basis points on theamount paid thereon, prior and in preference to distributions in respect of ordinary shares. No preference shares have been issued. The share capital as of each balance sheet date is as follows (EUR in millions): Treasury Class C shares are not disclosed as such due to the technical nature of this class of shares. The Company repurchases its Class A shares from time to time in part to reduce the dilutive effects of its Share-Based Awards to employees of theCompany. In March 2013, the Company's Board of Directors authorized a program to repurchase up to 12,000,000 Class A shares from time to time in open markettransactions. In December 2013, the Company's Board of Directors authorized an increase in the existing program by 3,000,000 shares. In July 2014, theCompany's Board of Directors authorized a further repurchase of up to 3,000,000 shares in effect through December 31, 2015. For the year ended December 31, 2013, the Company repurchased 8,599,377 Class A shares at an average price of $30.70 per share for a total amount ofRUR 8,518. Out of these shares 2,333,132 were used to satisfy the Company's obligations under Share-Based Awards. For the year ended December 31, 2014,the Company repurchased 7,446,319 Class A shares at an average price of $31.49 per share for a total amount of RUR 8,423 ($149.7). Out of these shares1,334,481 were used to satisfy the Company's obligations under Share-Based Awards. Treasury stock is accounted for under the cost method.F-43 December 31, 2013 December 31, 2014 Shares EUR RUR Shares EUR RUR Authorized: 4,204,230,282 2,143,740,824 Priority share 1 1 Preferenceshares 2,000,000,001 1,000,000,001 Class Aordinaryshares 2,000,000,000 1,000,000,000 Class Bordinaryshares 102,115,140 71,870,411 Class Cordinaryshares 102,115,140 71,870,411 Issued andfully paid: 353,032,573 €11.9 335 338,940,817 €9.7 230 Priority share 1 — — 1 — — Preferenceshares — — — — — — Class Aordinaryshares 256,998,306 2.5 106 267,970,405 2.7 112 Class Bordinaryshares 72,923,447 7.3 138 62,051,348 6.2 71 Class Cordinaryshares 23,110,819 2.1 91 8,919,063 0.8 47 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATIONEmployee Equity Incentive Plan The Company has granted Share-Based Awards to employees of the Company pursuant to its Employee Share Option Plan (the "2001 Plan") and theForth Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"). On January 29, 2001, the Supervisory Board of Yandex Technologies Ltd. ("YTL"), the former parent of the Company, approved the 2001 Plan, whichprovided for the issuance of up to 36,909,292 options to employees of the Company to purchase ordinary shares in YTL. On February 7, 2007, the Company'sBoard adopted the 2007 Plan and subsequently amended it on October 11, 2007, October 14, 2008, November 10, 2011, February 10, 2012, and July 24,2013. A share option issued under the 2007 Plan entitles the holder to purchase an ordinary share at a specified exercise price. SARs issued under the 2007Plan entitle the holder to receive a number of Class A shares determined by reference to appreciation from and after the date of grant in the fair market valueof a Class A share over the measurement price. RSUs awarded under the 2007 Plan entitle the holder to receive a fixed number of Class A shares at no costupon the satisfaction of certain time-based vesting criteria. The holders of RSUs have no rights to dividends or dividends equivalent. The 2007 Plan providesfor the issuance of Share-Based Awards to employees, officers, advisors and consultants of the Company and members of the Board of the Company toacquire or, in regard to SARs, to benefit from the appreciation of ordinary shares representing in the aggregate a maximum of 10% of the issued share capitalof the Company. In connection with a capital restructuring, all outstanding share options granted to eligible employees under the 2001 Plan were cancelledand replaced with new grants of options under the 2007 Plan. The Company recorded no additional compensation cost as a result of this cancellation andreplacement because the terms of the replacement awards are substantially the same. Under the 2007 Plan, the award exercise or measurement price per share is set at the "fair market value" and denominated in U.S. dollars on the date theShare-Based Awards are granted by the Company's Board. For purposes of the 2007 Plan, "fair market value" means (A) at any time when the Company'sshares are not publicly traded, the price per share most recently determined by the Board to be the fair market value; and (B) at any time when the shares arepublicly traded, (i) in the case of RSUs, the closing price per Class A Share (as adjusted to account for the ratio of shares to depositary shares, if necessary) onthe date of such determination; and (ii) in the case of Options and Share Appreciation Rights, the average closing price per Class A Share (as adjusted toaccount for the ratio of Class A Shares to such depositary shares, if necessary) on the 20 trading days immediately following the date of determination. Share-Based Awards granted under the 2007 Plan generally vest over a four-year period. Approximately 25% of the Share-Based Awards vest after one year, withthe remaining Share-Based Awards vesting in equal amounts on the last day of each quarter over the following three years. If a grantee ceases to be an eligibleparticipant within three months following the consummation of a change of control because of termination by the grantee for good reason or because oftermination by the Company for any reason other than for cause, the Share-Based Award(s) held by such grantee shall become fully vested and immediatelyexercisable. The maximum term of a Share-Based Award granted under the 2007 Plan may not exceed ten years. The 2007 Plan expires atF-44 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATION (Continued)midnight on October 11, 2017. After its expiration, no further grants can be made under the 2007 Plan but the vesting and effectiveness of Share-BasedAwards previously granted will remain unaffected. In October 2012, the Company offered non-executive employees of the Company an opportunity to exchange their SARs and options for RSUs based onan exchange ratio of 2:1. The replacement RSUs have the same vesting schedule as the existing SARs or existing options. A total of 692,855 awards wereexchanged in connection with this offer. The exchange was accounted for as a modification of the award in 2012 and this did not have a material impact onthe financial results. The Company estimates the fair value of share options and SARs using the BSM pricing model. The weighted average assumptions used in the BSMpricing model for grants made in the years ending December 31, 2012, 2013 and 2014 were as follows: The Company used the following assumptions in the BSM pricing model when valuing its Share-Based Awards:•Expected forfeitures. This assumption is estimated using historical trends of the number of awards forfeited prior to vesting and adjusted asappropriate for exceptional circumstances. Historically, as the Company typically only granted Share-Based Awards to senior employees whohad been with the Company for at least one year, and the turnover rate for such employees was minimal, the Company estimated expectedforfeitures to be insignificant. In 2012, as less senior employees began to be involved in the program, the Company calculated the forfeiturerate by reference to the historical employee turnover rate. •Expected volatility. For 2012 and 2013 grants, the Company used historical volatility of the Company's own shares. For 2014 grants, theCompany used future volatility of the Company's shares implied by the Company's convertible debt prices (Note 11) and cross-checked withthe historical volatility of the shares. •Expected term. The expected term of awards granted has been calculated following the "simplified" method, using half of the sum of thecontractual and vesting terms, because the Company has no historical pattern of exercises sufficient to estimate the expected term on a morereliable basis. •Dividend yield. This assumption is measured as the average annualized dividend estimated to be paid by the Company over the expected lifeof the award as a percentage of the share price at the grant date. The Company did not declare any dividends with respect to 2012, 2013 or2014. Currently, the Company does not have any plans to pay dividends in the near term. BecauseF-45 2012 2013 2014Dividend yield — — —Expected annual volatility 54% 49% 38%Risk-free interest rate 0.78% 1.77% 1.85%Expected life of the awards (years) 5.51 - 7.02 5.44 - 7.04 5.52 - 7.04Weighted-average grant date fair value of awards (per share) $10.13 $15.93 $10.74 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATION (Continued)optionees were generally compensated for dividends and the Company has no plans to pay cash dividends in the near term, it used anexpected dividend yield of zero in its option pricing model for awards granted in the years ended December 31, 2012, 2013 and 2014.•Fair value of ordinary shares. The Company estimated the fair value of its ordinary shares using the closing price of its ordinary shares on theNASDAQ Global Select Market on the date of grant. •Risk-free interest rate. The Company used the risk-free interest rates based on the US Treasury yield curve in effect at the grant date. The following table summarizes awards activity for the Company under the 2007 Plan:F-46 Options SARs RSUs Quantity Weightedaverage exerciseprice per share Quantity Weightedaverage exerciseprice per share Quantity Weightedaverage exerciseprice per share Outstanding as of January 1,2014 6,019,392 $5.13 1,612,664 $26.75 2,897,102 — Granted 28,000 33.09 880,000 29.44 1,458,628 — Exercised (1,067,332) 4.52 (39,100) 20.96 (333,959) — Forfeited (11,316) 5.30 (21,850) 31.85 (115,534) — Cancelled — — — — (168) — Outstanding as ofDecember 31, 2014 4,968,744 $5.41 2,431,714 $27.77 3,906,069 — Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATION (Continued) The following table summarizes information about outstanding and exercisable awards under the 2007 Plan as of December 31, 2014:F-47 Awards Outstanding Awards Exercisable Exercise Price ($) Type ofaward Numberoutstanding AverageRemainingContractualLife (in years) AggregateIntrinsicValue Numberexercisable AverageRemainingContractualLife (in years) AggregateIntrinsicValue 0.83 Option 455,000 0.50 $7.8 455,000 0.50 $7.8 2.16 Option 568,768 1.56 9.0 568,768 1.56 9.0 2.74 Option 501,300 2.37 7.6 501,300 2.37 7.6 3.40 Option 404,350 3.09 5.9 404,350 3.09 5.9 3.43 Option 212,820 4.41 3.1 212,820 4.41 3.1 3.51 Option 723,313 4.86 10.5 723,313 4.86 10.5 4.16 Option 674,858 5.42 9.3 671,733 5.42 9.3 8.77 Option 1,204,335 5.85 11.0 1,179,335 5.85 10.8 25.00 Option 168,000 6.40 — 147,000 6.40 — 27.74 Option 28,000 8.39 — 7,000 8.39 — 33.09 Option 28,000 9.40 — — — — Total Options 4,968,744 4.08 64.2 4,870,619 4.01 64.0 16.95 SARs 9,374 6.97 — 7,031 6.97 — 18.44 SARs — — — — — — 19.00 SARs 302,500 7.57 — 118,125 7.57 — 20.99 SARs 78,590 6.92 — 55,379 6.92 — 21.05 SARs 368,750 7.88 — 168,750 7.88 — 23.19 SARs 20,000 7.18 — 13,750 7.18 — 23.21 SARs 150,000 9.88 — — — — 23.29 SARs 37,500 7.88 — 9,375 7.88 — 29.94 SARs 550,000 9.55 — — — — 30.08 SARs — — — — — — 32.85 SARs 600,000 8.57 — 187,500 8.57 — 33.09 SARs 180,000 9.40 — — — — 38.99 SARs 135,000 8.88 — 35,938 8.88 — Total SARs 2,431,714 8.64 — 595,848 7.98 — — RSU 3,906,069 8.60 70.2 949,311 7.85 17.0 11,306,527 6.62 $134.4 6,415,778 4.95 $81.0 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATION (Continued) The following table summarizes information about non-vested share awards under the 2007 Plan: At December 31, 2014, there was RUR 4,658 ($82.8) of unamortized share-based compensation expense related to unvested share options, RSUs andSARs which is expected to be recognized over a weighted average period of 2.73 years. The Company expects that all but an insignificant portion of optionsand SARs outstanding will vest and therefore has not applied a forfeiture rate in estimating the total awards expected to vest. The Company expects2,484,844 out of 2,956,758 RSUs to vest after December 31, 2014. To the extent the actual forfeiture rate is different from the Company's estimate, share-based compensation related to these awards will be different from our expectations.Ex-Plan Options In January 2009, the Company hired certain former sales and product development employees of Mediaselling LLC ("Mediaselling"). The Companygranted some of these former Mediaselling employees performance-based options to purchase an aggregate of 378,000 Class A shares. The following table summarizes activity for these ex-plan options: There were no unvested ex-plan shares options as of December 31, 2013 and December 31, 2014. As of December 31, 2014, these ex-plan options have a remaining contractual life of 4.37 years; 3,700 outstanding ex-plan options have an intrinsicvalue of RUR 4 ($0.1).F-48 Options SARs RSUs Quantity WeightedAverageGrantDate FairValue Quantity WeightedAverageGrantDate FairValue Quantity WeightedAverageGrantDate FairValue Non-vested as of January 1, 2014 812,750 $5.67 1,434,957 $13.54 2,470,262 $25.86 Granted 28,000 13.21 880,000 10.66 1,458,628 29.39 Vested (731,310) 5.24 (457,240) 13.36 (856,597) 25.19 Forfeited (11,316) 3.24 (21,850) 15.62 (115,534) 26.69 Non-vested as of December 31, 2014 98,124 $11.31 1,835,867 $12.18 2,956,759 $27.77 Quantity WeightedAverageExercisePrice Outstanding as of December 31, 2013 19,300 €0.01 Exercised (15,600) 0.01 Cancelled — — Outstanding as of December 31, 2014 3,700 €0.01 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)14. SHARE-BASED COMPENSATION (Continued) At December 31, 2014, there was no unamortized share-based compensation expense related to unvested ex-plan options.Ex-plan RSUs In November 2011, the Company acquired SPB Software Group and subsequently granted 25,000 RSUs to some of the former SPB Software employees.Although these RSUs were granted ex-plan, they have the same vesting provisions as Share-Based Awards granted under the 2007 Plan. As of December 31,2014, these ex-plan RSUs had a remaining contractual life of 6.97 years; 18,282 of these RSUs had an intrinsic value of RUR 18 ($0.3); 13,032 exercisableex-plan RSUs had an intrinsic value of RUR 13 ($0.2). These RSUs had a grant date fair value of $0.01 per share, resulting in unamortized share-basedcompensation expense of RUR 5 ($0.1) that is expected to be recognized over a 1.00 year period.Share-Based Compensation Expense The Company recognized share-based compensation expense of RUR 376, RUR 754 and RUR 1,210 ($21.5) for the years ended December 31, 2012,2013 and 2014, respectively. The Company recognized RUR 4, RUR 9 and RUR 20 ($0.4) in related tax benefits for the years ended December 31, 2012,2013 and 2014, respectively.15. INFORMATION ABOUT SEGMENTS, REVENUES & GEOGRAPHIC AREAS Prior to 2014, the Company operated as a single operating segment. The Company's chief operating decision maker ("CODM") reviewed financialinformation on a consolidated basis for purposes of allocating resources and assessing financial performance. The Company's CODM is the managementcommittee consisting of a group of top managers made up of its CEO and a group of his direct reports. During 2014, the Company revised its organizationalstructure separating several focus areas in product lines and geographies. As a result, financial information that the Company's CODM regularly reviews forpurposes of allocating resources and assessing performance changed. Therefore, beginning 2014, the Company started to report its financial performancebased on the following reportable segments: Russian Search and Portal, Russian E-commerce. The results of the Company's remaining operating segments,including its Turkish and Ukrainian operations, Media Services, Taxi, Classified Aggregators and Data Factory, that do not meet the quantitative thresholdsfor disclosure, are included in Other category. The accounting policies of the segments are the same as those described in the summary of significantaccounting policies. Prior periods were restated to conform with the current year presentation.F-49 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)15. INFORMATION ABOUT SEGMENTS, REVENUES & GEOGRAPHIC AREAS (Continued) The measures of the segment's profits and losses that are used by CODM to assess segment performance and decide how to allocate resources arepresented below. Each segment's assets and capital expenditures are not reviewed by the CODM. The reconciliation between adjusted operating income and net income is as follows:F-50 2012 2013 2014 2014 RUR RUR RUR $ Russian Search and Portal: Revenues from external customers 25,536 34,906 45,303 805.3 Intersegment revenues 292 388 511 9.1 Depreciation and amortization (2,669) (3,279) (3,808) (67.7)Adjusted operating income 8,579 12,351 16,394 291.4 Russian E-commerce: Revenues from external customers 2,081 2,907 3,130 55.6 Intersegment revenues — — — — Depreciation and amortization (33) (38) (38) (0.7)Adjusted operating income 1,665 2,274 1,938 34.5 Other: Revenues from external customers 1,150 1,689 2,334 41.5 Intersegment revenues — — — — Depreciation and amortization (249) (378) (638) (11.3)Adjusted operating income (414) (1,034) (1,799) (32.0)Eliminations: Revenues from external customers — — — — Intersegment revenues (292) (388) (511) (9.1)Depreciation and amortization — — — — Adjusted operating income — — — — Total: Revenues from external customers 28,767 39,502 50,767 902.4 Intersegment revenues — — — — Depreciation and amortization (2,951) (3,695) (4,484) (79.7)Adjusted operating income 9,830 13,591 16,533 293.9 2012 2013 2014 2014 RUR RUR RUR $ Adjusted operating income 9,830 13,591 16,533 293.9 Less share-based compensation expense (376) (754) (1,210) (21.5)Add interest income, net 1,002 1,717 856 15.2 Add other income, net 118 2,159 6,296 111.9 Less provision for income taxes (2,351) (3,239) (5,455) (97.0)Net income 8,223 13,474 17,020 302.5 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)15. INFORMATION ABOUT SEGMENTS, REVENUES & GEOGRAPHIC AREAS (Continued) The Company's revenues consist of the following: Revenues by geography are based on the billing address of the advertiser. The following table sets forth revenues and long-lived assets other thanfinancial instruments and deferred tax assets by geographic area:F-51 2012 2013 2014 2014 RUR RUR RUR $ Advertising revenue(1): Text-based advertising: Yandex websites 20,610 27,584 35,228 626.2 Yandex ad network websites 4,898 7,885 11,410 202.8 Total text-based advertising 25,508 35,469 46,638 829.0 Display advertising 2,592 3,379 3,509 62.4 Total advertising revenue 28,100 38,848 50,147 891.4 Online payment commissions 552 394 — — Other revenues 115 260 620 11.0 Total revenues 28,767 39,502 50,767 902.4 (1)The Company records revenue net of VAT, commissions and discounts. Because it is impractical to track commissions anddiscounts for text-based advertising revenues generated on Yandex websites and on those of the Yandex ad network membersseparately, the Company has allocated commissions and discounts between its Yandex websites and the Yandex ad networkwebsites proportionately to their respective gross revenue contributions. 2012 2013 2014 2014 RUR RUR RUR $ Revenues: Russia 27,300 36,814 46,242 822.0 Rest of the world 1,467 2,688 4,525 80.4 Total revenues 28,767 39,502 50,767 902.4 Long-lived assets, net: Russia 8,447 11,998 21,115 375.3 Finland — 638 6,481 115.2 US 1,043 841 1,002 17.9 Rest of the world 408 989 1,723 30.6 Total long-lived assets, net 9,898 14,466 30,321 539.0 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)16. RELATED-PARTY TRANSACTIONS The Company has in place a registration rights agreement with its major shareholders that allows them to require the Company to register Class A sharesheld by them under the U.S. Securities Act of 1933, as amended (the "Securities Act"), under certain circumstances. In such circumstances, the Company isobliged to pay all expenses, other than underwriting commissions and discounts, relating to any such registration. Pursuant to this agreement, in March 2013,the Company was required to effect a registration and, in connection therewith, shareholders publicly offered an aggregate of 26,679,386 Class A shares,including 2,425,399 additional Class A shares sold pursuant to an over-allotment option granted to the underwriters at a price of $22.75 per share. Yandexdid not receive any proceeds from this offering. The expenses incurred by the Company related to this offering in the amount of RUR 28 were treated asrelated party transactions for the year ended December 31, 2013. The underwriters of the offering fully reimbursed the Company for these expenses. Following the sale of the controlling interest and deconsolidation of Yandex.Money in July 2013 (Note 4), the Company retained a non-controllinginterest and significant influence over Yandex.Money's business. The Company continues to use Yandex.Money for payment processing and to sublease toYandex.Money part of its premises. The amount of revenues from subleasing was RUR 34 and RUR 78 ($1.4) for the years ended December 31, 2013 and2014, respectively. The amount of fees for online payment commissions was RUR 56 and RUR 125 ($2.2) for the years ended December 31, 2013 and 2014,respectively. As of December 31, 2013 and 2014, the amount of receivables related to payment processing was RUR 6 and RUR 46 ($0.8), respectively. TheCompany believes that the terms of the agreements with Yandex.Money are comparable to the terms obtained in arm's-length transactions with unrelatedsimilarly situated customers and suppliers of the Company.17. SUBSEQUENT EVENTS In January 2015, the Company completed the acquisition of assets and assumption of liabilities constituting the business of RosTaxi ("RosTaxi"),operator of a taxi fleet management application, for a cash consideration of up to RUR 500 ($8.9), including a deferred payment of up to RUR 380 ($6.8),subject to successful technical integration and client base transition, and a contingent consideration of up to RUR 500 ($8.9) payable in the Company'sordinary shares depending on the number of qualifying taxi trips on the third anniversary of the closing. The acquisition was accounted for as a businesscombination. The preliminary allocation of purchase price to assets acquired is as follows. RUR 114 ($2.0) was attributed to intangible assets, RUR 224($4.0) was attributed to goodwill, and RUR 77 ($1.4) was attributed to deferred tax assets. Goodwill is attributable to the Other reportable segment. TheCompany has not recorded the contingent consideration of up to RUR 500 ($8.9) related to the number of qualifying taxi trips as purchase priceconsideration but instead records them as compensation expense on a straight-line basis as the sellers complete their requisite service periods. The results ofoperations of RosTaxi for the period prior to acquisition would not have had a material impact on the Company's results of operations for the years endedDecember 31, 2013 and 2014. In February 2015, the Company granted RSUs to purchase an aggregate of up to 347,816 Class A shares to its employees, respectively, pursuant to the2007 Plan.F-52 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(in millions of Russian rubles and U.S. dollars, except share and per share data)17. SUBSEQUENT EVENTS (Continued) In April 2015, the Company offered employees of the Company an opportunity to exchange up to 1,663,750 of their SARs for RSUs based on anexchange ratio of 2:1. The vesting of replacement RSUs will be extended by 12 months beyond the original vesting schedule of the exchanged SARs. Inaddition, no exercise of the replacement RSUs will be permitted until April 10, 2016. The exchange was completed with all 1,663,750 SARs beingexchanged. In March and April 2015, the Company repurchased and retired an additional $30.1 in aggregate principal amount of its outstanding Notes. Subsequent to December 31, 2014, the Russian ruble remained highly volatile against foreign currencies, including the U.S. dollar. The currencyexchange rate as of December 31, 2014 was RUR 56.2584 to $1.00 and, during the period from December 31, 2014 to April 28, 2015, the currency exchangerate of the Russian ruble appreciated to RUR 51.4690 to $1.00. The lowest rate reached during this period was RUR 69.6640 to $1.00 as of February 3, 2015.The highest rate reached during this period was RUR 49.6749 to $1.00 as of April 17, 2015.F-53 Table of Contents PART III. Item 17. Financial Statements See "Item 18. Financial Statements." Item 18. Financial Statements. See the financial statements beginning on page F-1. Item 19. Exhibits. ExhibitNumber Description of Document 1.2 Amended Articles of Association of the Company, amended as of May 21, 2014 4.1 Indenture dated as of December 17, 2013 between the Company, and The Bank of New York Mellon, as trustee(incorporated by reference to our 2013 Annual Report on Form 20-F (file no. 001-35173) filed with the Securitiesand Exchange Commission on April 4, 2014). 7.1 Amended and Restated Shareholders Agreement (incorporated by reference to Exhibit 10.1 from our RegistrationStatement on Form F-1 (file no. 333-173766) filed with the Securities and Exchange Commission on April 28,2011) 7.2 Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.2 from ourRegistration Statement on Form F-1 (file no. 333-173766) filed with the Securities and Exchange Commission onApril 28, 2011) 7.3 Sale and Purchase Agreement relating to the sale and purchase of the entire share capital of Immerbereit AG, dated11 June 2014 (incorporated by reference to Exhibit 99.2 to our form 6-K filed with the Securities and ExchangeCommission on June 16, 2014) 8.1 Principal Subsidiaries 12.1 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2 Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1 Certification by Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 15.1 Consent of ZAO Deloitte & Touche CIS, Independent Registered Public Accounting Firm 101 The following financial information formatted in eXtensible Business Reporting Language (XBRL):(i) Consolidated Balance Sheets as of December 31, 2013 and 2014, (ii) Consolidated Statements of Income for theYears Ended December 31, 2012, 2013 and 2014, (iii) Consolidated Statements of Comprehensive Income for theYears Ended December 31, 2012, 2013 and 2014, (iv) Consolidated Statements of Cash Flows for the Years EndedDecember 31, 2012, 2013 and 2014, (v) Consolidated Statements of Shareholders' Equity for the Years EndedDecember 31, 2012, 2013 and 2014, and (vi) Notes to Consolidated Financial Statements Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned tosign this Annual Report on its behalf. YANDEX N.V. By: /s/ ARKADY VOLOZH Name: Arkady Volozh Title: Chief Executive OfficerDate: April 30, 2015 EXHIBIT 1.2 ARTICLES OF ASSOCIATION Definitions. Article 1. 1. In the Articles of Association the following words and expressions shall have the meaning hereby assigned to them: a. “Affiliate” means, with respect to an Initial Qualified Holder that is not a natural person: (a) a natural person or legal entity that, directly, orindirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Initial Qualified Holder (a“Direct Affiliate”); (b) subject to the limitations set forth in the fourth paragraph of this definition, any direct or indirect beneficial holder (as ofthe tenth day of October two thousand and eight) of the securities or other membership interests of (x) any Initial Qualified Holder or (y) anyparty that was (as of the tenth day of October two thousand and eight) a Direct Affiliate of such Initial Qualified Holder, in each case to theextent of its pro rata beneficial interest in the Class B Ordinary Shares held directly or indirectly by such Initial Qualified Holder or DirectAffiliate as of the tenth day of October two thousand and eight (a “Qualified Beneficial Holder”), (c) any legal entity that is under commoninvestment control with, or acts solely as bare nominee holder on behalf of, such Initial Qualified Holder, any Direct Affiliate or any QualifiedBeneficial Holder, and (d) where such Initial Qualified Holder is an estate or tax planning vehicle (including a trust, corporation andpartnership) any direct or indirect beneficiary thereof (as of the tenth day of October two thousand and eight) to the extent of its pro ratabeneficial interest in the Class B Ordinary Shares held by such Initial Qualified Holder as of the tenth day of October two thousand and eight. The term “control” shall mean the ownership, directly or indirectly, of shares possessing more than fifty percent (50%) of the voting power of alegal entity, or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such legal entity; provided that, for purposes of clause (a) of the first paragraph of this definition, all voting power held byentities under common control (including investment funds under common investment control) shall be aggregated together and attributed toeach other such entity under common control for the purpose of determining the voting power percentage of each such entity. The term “investment control” shall mean, with respect to any person, the possession, directly or indirectly (whether through the ownership ofvoting securities, by contract or otherwise), of the sole and exclusive power to direct or cause the direction of the voting or disposition of allsecurities held by such person. Two entities shall be considered to be under common investment control if they are subject to investmentcontrol by the same party. 1 Notwithstanding the foregoing, (x) in no event shall a limited partner of (or comparable passive investor in) any entity be deemed to be anAffiliate of such entity pursuant to clauses (b) and (c) of the first paragraph of this definition; (y) a party shall cease to qualify as an Affiliate forpurposes of clause (a) of the first paragraph of this definition if it ceases to control, be controlled by, or be under common control with, suchInitial Qualified Holder; and (z) a party shall cease to qualify as an Affiliate for purposes of clause (c) of the first paragraph of this definition if itceases to be under common investment control with, or to act as bare nominee for, such Initial Qualified Holder, Direct Affiliate or QualifiedBeneficial Holder. For the avoidance of doubt, any entity incorporated, formed, organized, created or acquired after the tenth day ofOctober two thousand and eight shall itself be eligible to meet the definition of Affiliate for purposes hereof; b. “Affiliated Party” means: with respect to any party, any other natural person or legal entity that (a) directly, or indirectly through one or moreintermediaries, controls, is controlled by, or is under common control with such party (and/or, in the case of any Initial Qualified Holder, anyAffiliate of such Initial Qualified Holder), (b) is acting in concert with such party (and/or, in the case of any Initial Qualified Holder, anyAffiliate of such Initial Qualified Holder) pursuant to a voting agreement or other formal arrangement with respect to the acquisition,disposition or voting of Shares (other than the Shareholders Agreement) or (c) is a pledgee of Ordinary Shares held by such party (and/or, in thecase of any Initial Qualified Holder, any Affiliate of such Initial Qualified Holder) that is entitled to exercise the voting rights pertaining tosuch Ordinary Shares. For purposes hereof, the term “control” shall have the meaning set forth in the definition of Affiliate; c. “Articles of Association” means: the articles of association of the Company in their current form and as amended from time to time; d. “Book 2” means: Book 2 of the Dutch Civil Code; e. “Board of Directors” means: the body of persons/individual person(s) controlling the management of the Company’s business consisting ofExecutive Directors and Non-Executive Directors as referred to in Article 12; f. “Class A Ordinary Shares” means: class A ordinary shares in the capital of the Company; g. “Class B Ordinary Shares” means: class B ordinary shares in the capital of the Company; h. “Class C Ordinary Shares” means: class C ordinary shares in the capital of the Company; i. “Company” means: the corporate legal entity governed by these Articles of Association; j. “Conversion Foundation” means: Stichting Yandex Conversion, a foundation incorporated under Dutch law with statutory seat in The Hagueand its business office at Schiphol Boulevard 165, 1118 BG Schiphol (the Netherlands); 2 k. “Direct Affiliate” has the meaning giving to such term in the definition of Affiliate; l. “Excess Shares” means: any Ordinary Shares held or to be acquired or subscribed for in excess of the applicable Ownership Cap; m. “Executive Director” means: a member of the Board of Directors being appointed as executive director (uitvoerend bestuurder) and as suchentrusted with the responsibility for the day-to-day management of the Company; n. “General Meeting” means: the members constituting the general meeting, and also: meetings of that body of members; o. “Initial Qualified Holder” means, in relation to any Class B Ordinary Share: (a) the person holding such Class B Ordinary Share pursuant tothe conversion into Class B Ordinary Shares of ordinary shares in the capital of the Company on the tenth day of October two thousand eightand (b) any party that was a record holder of Internet Search Investments Limited (“ISIL”), a Bermuda company, as of the twenty-sixth day ofAugust two thousand and eight and has Class B Ordinary Shares distributed to it by ISIL prior to the execution of this Deed pro rata to suchparty’s beneficial indirect interest in the Company on the twenty-sixth day of August two thousand and eight; p. “Meeting of holders of Class A Ordinary Shares” means: the meeting of holders of Class A Ordinary Shares; q. “Meeting of holders of Class B Ordinary Shares” means: the meeting of holders of Class B Ordinary Shares; r. “Meeting of holders of Class C Ordinary Shares” means: the meeting of holders of Class C Ordinary Shares; s. “Meeting of holders of Preference Shares” means: the meeting of holders of Preference Shares; t. “Meeting of the holder of the Priority Share” means: the meeting of the holder of the Priority Share; u. “Non-Executive Director” means: a member of the Board of the Directors appointed as non-executive director (niet-uitvoerend bestuurder) notbeing entrusted with the responsibility for the day-to-day management of the Company; v. “Non-Qualified B Holder” with respect to any Class B Ordinary Share, means: anyone who is not a Qualified B Holder of such Class BOrdinary Share or ceases to be a Qualified B Holder of such Class B Ordinary Share (including, for the avoidance of doubt, a legal holder of aClass B Ordinary Share that has Transferred such Class B Ordinary Share other than to a Permitted Transferee); w. “Ordinary Shares” means: Class A Ordinary Shares, Class B Ordinary Shares and Class C Ordinary Shares; x. “Ownership Cap” means: the lesser of (a) twenty-five percent (25%) of the voting rights pertaining to the issued Class A Ordinary Shares andClass B Ordinary Shares (taken together) of the Company from time to time or (b) 3 twenty-five percent (25%) of the number of issued Class A Ordinary Shares and Class B Ordinary Shares (taken together) from time to time. Notwithstanding the foregoing, (x) in the event that both the Board of Directors and the Priority have approved a holding of Excess Shares by aparty as a result of a Triggering Event pursuant to the terms of the Articles of Association, the Ownership Cap in respect of such party, togetherwith its Affiliated Parties, shall, following the date of such approval, be increased by the number of Excess Shares so approved; and (y) in theevent of an increase in a Shareholder’s proportionate ownership or voting interest occurring solely as a result of changes in the share capitalstructure of the Company (including, without limitation, share splits, capital reorganisations, share dividends, share repurchases, conversions ofClass B Ordinary Shares pursuant to the terms of Article 4B, and similar events or transactions), the Ownership Cap in respect of suchShareholder, together with its Affiliated Parties, shall, following the date of such event, be increased by the number of Excess Shares resultingfrom such event; y. “Permitted Transferee” in relation to any Class B Ordinary Share held by an Initial Qualified Holder means: (i) such Initial Qualified Holder (as transferee of any Class B Ordinary Share retransferred to such Initial Qualified Holder from itsPermitted Transferee); (ii) with respect to any such Initial Qualified Holder that is a natural person, any estate or tax planning vehicle (including a trust,corporation and partnership), the beneficiaries of which include such Initial Qualified Holder and/or members of the immediate familyof such Initial Qualified Holder, provided that such Initial Qualified Holder retains (subject to any community or spousal propertylaws) sole voting and dispositive power over such Class B Ordinary Share, and provided further that the Transfer to such estate or taxplanning vehicle does not involve payment of any consideration (other than the interest in such trust, corporation, partnership or otherestate or tax planning vehicle); and (iii) with respect to any such Initial Qualified Holder that is not a natural person, any Affiliate of such Initial Qualified Holder; providedhowever that any such party that ceases to be an Affiliate shall cease to be a Permitted Transferee. For purposes of the definition of “Triggering Event”, each reference to “Class B Ordinary Shares” in the foregoing definition (and in thedefinition of each term used therein) shall be deemed to be a reference to “Ordinary Shares”; z. “Potential Acquiror” has the meaning set forth in paragraph 11 of Article 4C; aa. “Preference Shares” means: preference shares in the capital of the Company; bb. “Priority” means: the corporate body (orgaan) constituted by the Meeting of holder of the Priority Share; 4 cc. “Priority Share” means: the priority share in the capital of the Company; dd. “Qualified B Holder” means, in relation to any Class B Ordinary Share: the Company, the Initial Qualified Holder of such Class B OrdinaryShare and any Permitted Transferee thereof, in each case provided that (i) such person has become a party to, and is not in material continuingbreach of, the Shareholders Agreement and (ii) such Class B Ordinary Share has not been Transferred (including by way of a transfer of the legalholder thereof), other than to a Permitted Transferee; ee. “Qualified Beneficial Holder” has the meaning giving to such term in the definition of Affiliate; ff. “Shares” means: Ordinary Shares, the Priority Share and Preference Shares; gg. “Shareholder(s)” means: any holder(s) of Shares; hh. “Shareholders Agreement” means: the shareholders agreement among the holders of Ordinary Shares and the Conversion Foundation, dated asof the fourteenth day of October two thousand eight, as amended from time to time in accordance with the terms thereof; ii. “Subsidiary(ies)” means: (a) subsidiary(ies) (dochtermaatschappij(en)) as defined in section 24a of Book 2; and jj. “Transfer” when used in relation to an Ordinary Share, means: any direct or indirect sale, assignment, transfer under general or specific title(algemene of bijzondere titel), conveyance, grant of any form of security interest (other than as explicitly provided in this definition), or othertransfer or disposition of an Ordinary Share or any legal or beneficial interest therein, whether or not for value and whether voluntary orinvoluntary or by operation of law. A “Transfer” of an Ordinary Share shall also include, without limitation, the transfer of, or entering into abinding agreement with respect to, voting control over an Ordinary Share by proxy or otherwise; provided, however, that the following shallnot be considered a “Transfer” of an Ordinary Share: (a) the granting of a power of attorney to persons designated by the Board of Directors ofthe Company in connection with actions to be taken at a General Meeting of Shareholders; (b) entering into the Shareholders Agreement or anyamendment thereof; (c) solely with respect to Class B Ordinary Shares, the entering into or amendment, solely by and among a Qualified BHolder and one or more of its Permitted Transferees, of a binding agreement with respect to voting control over a Class B Ordinary Share; or(d) solely with respect to Class B Ordinary Shares, the pledge of Class B Ordinary Shares by a Qualified B Holder that creates a mere securityinterest in such shares pursuant to a bona fide loan or indebtedness transaction so long as the Qualified B Holder continues to exercise votingcontrol over such pledged shares; provided, however, that a foreclosure on such Ordinary Shares or other similar action by the pledgee shallconstitute a “Transfer” of an Ordinary Share; and 5 kk. “Triggering Event” means: any direct or indirect Transfer of Ordinary Shares after the twenty-sixth day of August two thousand and nine(other than to a Permitted Transferee of such Ordinary Shares) or acquisition of Shares (including by Transfer or subscription and, for theavoidance of doubt, as a result of a change of control of, or a merger or business combination involving, one or more legal or beneficial ownersof a Share). For the avoidance of doubt, the term Triggering Event excludes changes in proportionate ownership or voting interest occurringsolely as a result of changes in the share capital structure of the Company (including, without limitation, share splits, capital reorganisations,share dividends, share repurchases, conversions of Class B Ordinary Shares pursuant to the terms of Article 4B, and similar events ortransactions). 2. The expressions “written” and “in writing” used in these Articles of Association mean: communications sent by post, telefax, e-mail or by any othermeans of telecommunication capable of transmitting written text, unless Dutch statutory law prescribes otherwise. Name and Registered Office. Article 2. 1. The Company is a limited liability company and its name is: Yandex N.V. 2. The Company has its registered office in Amsterdam (the Netherlands). The Company may have branch offices elsewhere, also outside of the Netherlands. Objects. Article 3. 1. The objects for which the Company is established are: a. either alone or jointly with others to acquire and dispose of participations or other interests in bodies corporate, companies and enterprises, tocollaborate with and to manage such bodies corporate, companies or enterprises; b. to acquire, manage, turn to account, encumber and dispose of any property - including intellectual property rights - and to invest capital; c. to supply or procure the supply of money loans, particularly - but not exclusively - loans to bodies corporate and companies which areSubsidiaries and/or affiliates of the Company or in which the Company holds any interest - all this subject to the provision in paragraph 2 ofthis Article - , as well as to draw or to procure the drawing of money loans; d. to enter into agreements whereby the Company grants security, commits itself as guarantor or severally liable co-debtor, or declares itselfjointly or severally liable with or for others, particularly - but not exclusively - to the benefit of bodies corporate and companies as referred toabove under c; e. to do all such things as are incidental or conducive to the above objects or any of them. 6 2. The Company may not grant security, give price guarantees, commit itself in any other way or declare itself jointly or severally liable with or forothers with a view to enabling third parties to take or acquire Shares. Capital. Article 4. 1. The authorised capital of the Company is thirty-three million six hundred fifty-five thousand three hundred seventy-nine euro and ten eurocent(EUR 33,655,379.10), divided into: a. one billion one hundred forty-three million seven hundred forty thousand eight hundred twenty-two (1,143,740,822) Ordinary Shares of whichare; i) one billion (1,000,000,000) Class A Ordinary Shares, each with a par value of one eurocent (EUR 0.01); ii) seventy one million eight hundred seventy thousand four hundred eleven (71,870,411) Class B Ordinary Shares, each with a par value often eurocent (EUR 0.10); iii) seventy one million eight hundred seventy thousand four hundred eleven (71,870,411) Class C Ordinary Shares, each with a par value ofnine eurocent (EUR 0.09); b. one billion and one (1,000,000,001) Preference Shares, each with a par value of one eurocent (EUR 0.01); and c. one (1) Priority Share, with a par value of one euro (EUR 1.00). Transfer and conversion of Class B Ordinary Shares. Article 4A 1. Class B Ordinary Shares may only be Transferred to (i) Permitted Transferees, (ii) to the Conversion Foundation for the purpose of conversion pursuantto Articles 4A and 4B and (iii) to the Company. Any other purported Transfer of a Class B Ordinary Share shall be null and void. 2. Class B Ordinary Shares can be converted into Class A Ordinary Shares with due observance of this Article. In order to cause the Class B OrdinaryShares to be converted into Class A Ordinary Shares, such Class B Ordinary Shares must be transferred to the Conversion Foundation. 3. Upon execution of the transfer instrument pursuant to which the Class B Ordinary Shares are transferred to the Conversion Foundation, each Class BOrdinary Share is automatically converted into one (1) Class A Ordinary Share and one (1) Class C Ordinary Share. Unless the Company shall be aparty to the transfer instrument, the Conversion Foundation shall forthwith notify the Company in writing of the conversion of Class B OrdinaryShares as described in the preceding sentence. The transferor shall receive a Class A Ordinary Share from the Conversion Foundation in exchange foreach Class B Ordinary Share transferred to the Conversion Foundation. 4. The Board of Directors shall forthwith register any such conversion of Shares in the register of Shareholders and equally in any applicable companyregister. 5. The Company shall at all times reserve and keep available out of its authorized but unissued capital, solely for the purpose of effecting the conversionof Class B Ordinary 7 Shares, such number of Class A Ordinary Shares and Class C Ordinary Shares as shall from time to time be sufficient to effect the conversion of alloutstanding Class B Ordinary Shares into Class A Ordinary Shares and Class C Ordinary Shares. 6. The Company may, from time to time, establish such policies and procedures relating to the conversion of the Class B Ordinary Shares into Class AOrdinary Shares and Class C Ordinary Shares and the general administration of this share capital structure as it may deem necessary or advisable, andmay request that holders of Class B Ordinary Shares furnish affidavits or other proof to the Company as it deems necessary to verify the legal andbeneficial ownership of Class B Ordinary Shares and the “Qualified B Holder” status of any such holder, and to confirm that Class B Ordinary Sharesare not held by a Non-Qualified B Holder. Qualified shareholding of Class B Ordinary Shares. Article 4B. 1. Only a Qualified B Holder may hold Class B Ordinary Shares. 2. If at any time a Class B Ordinary Share is held by a Non-Qualified B Holder, such Non-Qualified B Holder shall, without prejudice to the stipulationsof paragraph 4 of this Article, not be entitled to any dividend and/or voting rights attached to the Class B Ordinary Shares held by such Non-QualifiedB Holder. 3. If at any time a Class B Ordinary Share is held by a Non-Qualified B Holder, such Non-Qualified B Holder (the “Transferor”) shall notify the Companyof this fact by written notice (the “Notice”) within three (3) days after the occurrence of the event pursuant to which the Transferor is obliged to servethe Notice. At the time of the Notice the relevant Non-Qualified B Holder is obliged to offer his Class B Ordinary Shares to the Conversion Foundation(the “Offer”), through which such Class B Ordinary Shares are converted into Class A Ordinary Shares and Class C Ordinary Shares with dueobservance of Article 4A. The Transferor shall receive an equal number of Class A Ordinary Shares from the Conversion Foundation in exchange forsuch Class B Ordinary Shares. 4. If the Transferor fails to: a. give the Notice and or make the Offer within the term provided in this Article; or b. transfer the relevant Class B Ordinary Shares to the Conversion Foundation within three (3) days of the Notice, the Company is irrevocably empowered and authorised to offer and transfer the relevant Class B Ordinary Shares to the Conversion Foundation and toaccept the Class A Ordinary Shares in exchange for such Class B Ordinary Shares for delivery to the Transferor. 5. If the Conversion Foundation fails to accept the offered Class B Ordinary Shares from the Transferor within three (3) months after receipt of the Offer,then the Transferor’s dividend and voting rights attached to its Class B Ordinary Shares shall revive. 6. Each and every Qualified B Holder shall cease to be a Qualified B Holder if and when ninety-five percent (95%) or more of all issued and outstandingClass A Ordinary 8 Shares and Class B Ordinary Shares (by number, taken together) are Class A Ordinary Shares. 7. Each Class B Ordinary Share held by a natural person that is a Qualified B Holder, or by its Permitted Transferees, shall, following the death of suchQualified B Holder, be deemed to be held by a Non-Qualified B Holder. Qualified shareholding of Ordinary Shares. Article 4C. 1. No Ordinary Share may be held as a result of a Triggering Event by a Shareholder if, as a result of such Triggering Event, such Shareholder or anyother party (in each case together with its Affiliated Parties), would hold, legally and/or beneficially, Excess Shares, unless such holding of ExcessShares is approved by both the Board of Directors and the Priority pursuant to paragraph 10 of this Article 4C. If the Shares (a) are admitted to tradingon a regulated market or multilateral trading facility or an exchange system of a non-member state that is comparable to a regulated market ormultilateral trading facility (including, for the purposes hereof, The Nasdaq Global Market) and (b) are included in a system that facilitates the (tradingand) settlement of Shares (including, for the purposes hereof, the system operated by The Depository Trust Company) and/or are held by a nominee forsuch purposes (including, for the purposes hereof, Cede & Co.) that may qualify as the legal holder of the Shares, the provisions of this Article 4Capply mutatis mutandis to the parties holding an interest in the Shares through such system or nominee. The term “Shareholder” shall be construedaccordingly for the purposes of this Clause 4C. 2. The qualified shareholding restriction set forth in paragraph 1 above shall not apply to: a. Any custodian (bank) or nominee acting to facilitate the (trading and) settlement of the Shares listed at a regulated market or multilateraltrading facility or an exchange or system of a non-member state that is comparable to a regulated market or multilateral trading facility(including, for purposes hereof, The Nasdaq Global Market) and any investment bank or banks acting as underwriter(s) in connection with apublic offering of Class A Ordinary Shares, in their capacity as such. b. Any Shareholder that acts as a bare nominee holder of Class A Ordinary Shares on behalf of the beneficial holder(s) thereof; provided that(subject to the final clause of this subparagraph b): (i) immediately following receipt of any information by such bare nominee with respect to any potential or effected change in beneficialownership of any Shares held by it (including a change in the identity of any beneficial holder or a change in the number of sharesbeneficially held) that has resulted or would result in a beneficial holder on whose behalf such bare nominee holds Shares beneficiallyowning (together with its Affiliated Parties) Excess Shares, such bare nominee shall notify the Board of Directors of all details actuallyknown to such bare nominee relating to such change; 9 (ii) such bare nominee provides to the Board of Directors, within five (5) business days of any request by it from time to time, a writtenstatement disclosing the identity of each beneficial holder of Shares legally held in its name that, together with its Affiliated Parties,holds Excess Shares, and the percentage holding of each such beneficial holder, specifying the rights of such beneficial holder withrespect to the voting or disposition of such Shares, in each case to the extent actually known by such bare nominee; and (iii) promptly after such bare nominee becomes aware (including following a notification from the Board of Directors to the bare nominee)that a beneficial holder on whose behalf such bare nominee holds Shares beneficially owns (together with its Affiliated Parties) ExcessShares, such bare nominee distributes to such beneficial holder a number of Shares equal to the number of Excess Shares beneficiallyheld by such beneficial holder and its Affiliated Parties; provided, however, that (x) such bare nominee shall not be required by the provisions of this subparagraph b to disclose any information or takeany action that it is not permitted to disclose or take pursuant to applicable law, contract or internal compliance policy; and (y) no notificationto the Board shall be required in respect of information otherwise notifiable to the Board pursuant to paragraphs (i) and (ii) of this subparagraphb that is timely disclosed to the United States Securities and Exchange Commission on Schedule 13D or Schedule 13G in accordance with theapplicable rules of the United States Securities and Exchange Commission; c. The Conversion Foundation. 3. Any Transfer or acquisition of Class B Ordinary Shares in violation of paragraph 1 of this Article is null and void. 4. If at any time the legal and/or beneficial holdings of a Shareholder or any other party (in each case together with its Affiliated Parties), exceeds theapplicable Ownership Cap as a result of a Triggering Event and such holding of Excess Shares has not been approved by both the Board of Directorsand the Priority pursuant to paragraph 10 of this Article (and is not otherwise exempted by paragraph 2 above), the Shareholder of the relevant ExcessShares is obliged (i) if and to the extent the Excess Shares are Class A Ordinary Shares, to sell the Excess Shares in the public market or otherwisewithin five (5) business days after a Triggering Event; and (ii) (a) if and to the extent the Excess Shares are Class B Ordinary Shares and the Transfer oracquisition of such Class B Ordinary Shares is held not to be null and void as provided for in paragraph 3, or (b) the Shareholder fails to sell the ExcessShares in accordance with clause (i) of if this paragraph 4 within the five (5)-business day period, to offer such Excess Shares to the Board of Directorswithin ten (10) business days after the Triggering Event. 10 5. If a Shareholder, within ten (10) business days after a Triggering Event, fails to comply with the obligation of paragraph 4 of this Article to offer theExcess Shares to the Board of Directors, (i) such Shareholder shall be deemed to have offered such Excess Shares to the Board of Directors, and (ii) theBoard of Directors will be irrevocably authorised, with the right of substitution, to perform such acts and transactions on behalf of such Shareholder asdeemed necessary to comply with the provisions of this Article, including but not limited to the sale and transfer of such Excess Shares in accordancewith the terms of this Article 4C. 6. During the period in which a Shareholder has not effectuated the transfer of Excess Shares in accordance with this Article 4C and either the Board ofDirectors or the Priority have not approved the holding of Excess Shares by the Shareholder thereof pursuant to paragraph 10 of this Article, suchShareholder will not be entitled to any dividend and/or voting rights attached to the Excess Shares. 7. The Board of Directors is authorised to (i) nominate one or more purchasers or substitute purchasers (which, in each case, may include the Company)that are willing to buy the Excess Shares offered in accordance with paragraph 4 or paragraph 5 of this Article, against payment in cash; or (ii) sell theExcess Shares in the public market through a broker or placement agent, hired and instructed by the Board of Directors for this purpose. If (a) the Boardof Directors fails to nominate one or more purchasers (or substitute purchasers) in accordance with the terms and conditions of this paragraph withinthree (3) months from the date of the (deemed) offer hereunder, or (b) the party or parties so nominated by the Board of Directors fail to accept the offerwithin three (3) months from the date of the (deemed) offer hereunder, or (c) the Board of Directors fails to sell the Excess Shares in the public marketwithin three (3) months from the date of the (deemed) offer hereunder, the requirements of this Article shall not apply to the offering Shareholder untilsuch Shareholder acquires (or is deemed to acquire) one or more (additional) Ordinary Shares. 8. The purchase price for any Ordinary Shares offered in accordance with paragraph 4 or paragraph 5 of this Article in the event of the nomination of oneor more purchasers pursuant to clause (i) of paragraph 7, shall be the fair market value of such Shares on the date of the (deemed) offer. Such fair marketvalue shall be determined as follows: (i) if the Shares are admitted to trading on a regulated market or multilateral trading facility, as referred to inarticle 1:1 of the Financial Supervision Act (Wet financieel toezicht) or an exchange or system of a non-member state that is comparable to a regulatedmarket or multilateral trading facility (including, for purposes hereof, The Nasdaq Global Market), the reported closing sale price on such exchange orsystem on such date (or the last trading date immediately prior to such date), or (ii) if no Shares of the Company are then admitted to such trading, thefair market value of such Share as conclusively determined by an internationally reputable and independent third party appraiser appointed for thispurpose by the Board of Directors. In the event of a public market sale pursuant to clause (ii) of paragraph 7, the purchase price shall be such price orprices obtained in good faith by a placement 11 agent engaged by the Board of Directors or in arm’s length brokers transaction(s) in the public market (it being expressly acknowledged that such salesmay take place at any time or times during the three (3)-month period described above and that the sale prices of the Excess Shares so sold may vary). The Board of Directors is irrevocably authorised, with the right of substitution, to perform such acts and transactions on behalf of the sellingShareholder as the Board of Directors may deem necessary or convenient to effect the sale and transfer of such Excess Shares in accordance with theterms of this Article 4C. 9. For the purpose of enabling the Board of Directors to adequately perform its duties under this Article, each Shareholder is obliged to inform the Boardof Directors within ten (10) days of any Triggering Event that results in such Shareholder (or, to the knowledge of such Shareholder, any beneficialholder(s) on whose behalf such Shareholder is holding Shares), together with its (or such beneficial party’s) Affiliated Parties, exceeding a legal and/orbeneficial holding threshold of five percent (5%), ten percent (10%), fifteen percent (15%), twenty percent (20%), twenty-five percent (25%) or thirtypercent (30%) of either the voting rights attached to the issued Class A Ordinary Shares and the Class B Ordinary Shares (taken together) or the numberof issued Class A Ordinary Shares and the Class B Ordinary Shares (taken together). In the event that a Shareholder (or, to the knowledge of suchShareholder, any beneficial holder(s) on whose behalf such Shareholder is holding Shares), together with its (or such beneficial party’s) AffiliatedParties, acquires legal and/or beneficial ownership of Excess Shares, such Shareholder shall, together with the foregoing notification, notify the Boardof Directors of the price or prices paid for the purchase of such Excess Shares. Failing compliance with the obligations laid down in this paragraph,such Shareholder will not be entitled to any dividend and/or voting rights attached to any of his Shares or - in case of a bare nominee holder of Shareson behalf of the beneficial holder(s) thereof - to the Shares held on behalf of such beneficial holder(s). Without limiting the foregoing, eachShareholder shall, within five (5) business days of notice from the Board of Directors, (x) identify to the Board of Directors in writing any beneficialholder of Shares registered in the name of such Shareholder in excess of any of the foregoing thresholds, and (y) if so requested, shall furnish affidavitsor such other proof to the Board of Directors as the Board of Directors reasonably deems necessary to verify the legal and/or beneficial ownership ofsuch Shares. For purposes of the preceding sentence, “beneficial ownership” may be determined in accordance with Rule 13d-3 under the UnitedStates Securities Exchange Act of 1934, as amended. Notwithstanding, the provisions of this paragraph 9, no notification to the Board shall berequired in respect of information otherwise notifiable to the Board hereunder that is timely disclosed to the United States Securities and ExchangeCommission on Schedule 13D or Schedule 13G in accordance with the applicable rules of the United States Securities and Exchange Commission.This paragraph 9 shall not apply to any custodian (bank) or nominee acting to facilitate the (trading and) settlement of the Shares listed at a regulatedmarket or multilateral trading facility or 12 an exchange or system of a non-member state that is comparable to a regulated market or multilateral trading facility (including, for purposes hereof,The Nasdaq Global Market). 10. Any person seeking to acquire legal and/or beneficial ownership together with its Affiliated Parties of Excess Shares by acquisition or subscription oras a result of another Triggering Event (a “Potential Acquiror”), whether in one or more transactions, may seek prior approval first by the Board ofDirectors and subsequently (upon approval by the Board of Directors) approval by the Priority of such acquisition, subscription or holding as result ofanother Triggering Event by submitting a notification in writing to the Board of Directors at the registered office of the Company (with a copy to theChairman of the Board of Directors at such address and/or email address as may be identified from time to time for such purpose on the investorrelations section of the Company’s website at www.yandex.ru) setting forth (i) the terms and conditions of such proposed acquisition(s),subscription(s) or other Triggering Event(s), including the identity of the transferring party(ies) and the proposed purchase or subscription price, ifapplicable, (ii) a detailed description of the identity of the Potential Acquiror, including the jurisdiction of incorporation or residence of the PotentialAcquiror and the identity and jurisdiction of incorporation or residence of each legal and/or beneficial holder of more than five percent (5%) of theownership interests in such Potential Acquiror; and (iii) a detailed description of the Potential Acquiror’s intentions with respect to its shareholding inthe Company and any further potential acquisitions of Shares. Within twenty (20) business days of its receipt of such notification, the Board ofDirectors shall (x) decide on its approval or rejection in relation to the proposed acquisition of Excess Shares by the Potential Acquiror and (y) informthe Potential Acquiror of its decision. Subsequently, provided that the Board of Directors has approved the proposed acquisition of Excess Shares bythe Potential Acquiror, the Board of Directors shall provide a copy of the information package submitted by the Potential Acquiror to the Board ofDirectors, together with its approval thereof and its recommendation thereon, to the Priority. The Priority shall then have twenty (20) business daysfollowing its receipt of the notification from the Board of Directors to deliver a written notification to the Board of Directors either approving orrejecting the holding of Excess Shares as a result of such acquisition, subscription or other Triggering Event. The Board of Directors shall provide acopy of such notification to the Proposed Acquiror within three (3) business days of its receipt thereof. In the event that either the Board of Directors orthe Priority fails to timely deliver a notification setting forth its approval or rejection of the proposed holding of Excess Shares, it shall be deemed tohave withheld its approval thereof. 11. In the event that any law or regulation of the Russian Federation is adopted or amended to impose a limitation or restriction on the ownership ofinternet businesses in Russia by non-Russian parties in a manner that is directly applicable to the Company and/or its business, then, immediatelyupon the effectiveness of such change in law or regulation, the provisions of this Article 4C, the provisions of Article 13 14B and the provision of Article 28.4, including the approval rights of the Priority Share hereunder and thereunder, shall terminate and thereafter be ofno further force or effect; provided however, that the foregoing provision shall not apply in case of any law or regulation that applies to the Companyonly by virtue of any activity undertaken by the Company or any member of its group that is ancillary to the operation of its internet business. Qualified shareholding of the Priority Share. Article 4D. 1. The Priority Share may only be held by a party that is specifically nominated by the Board of Directors for this purpose. Any transfer of the PriorityShare is subject to prior written approval of the Board of Directors, acting by simple majority. 2. Any transfer of the Priority Share in violation of paragraph 1 of this Article is null and void. 3. If and so long as the Priority Share is not held by a party that meets the criteria laid down in paragraph 1 of this Article, the voting rights, dividendrights and other rights pertaining to the Priority Share (including, without limitation, the approval rights hereunder) may not be exercised. 4. Until the moment that the Priority Share is issued, the provisions laid down in these Articles relating to the Priority Share, the Priority or the Meetingof Priority Share shall be of no effect. Shares. Usufruct and pledge of Shares. Article 5. 1. All Shares shall be registered Shares. No share certificates shall be issued. The Board of Directors may number the Shares in a manner determined at itssole discretion. 2. Shares may be encumbered with usufruct. At the creation of the right of usufruct in respect of Class A Ordinary Shares it may be provided that the rightto vote pertaining to the Class A Ordinary Shares shall vest in the usufructuary. The voting rights pertaining to the Priority Share, the Class B OrdinaryShares and the Class C Ordinary Shares may not be transferred to a usufructuary. 3. Ordinary Shares and Preference Shares may be pledged as security. At the creation of the pledge in respect of Class A Ordinary Shares it may beprovided that the right to vote shall vest in the pledgee. The voting rights pertaining to the Class B Ordinary Shares, the Class C Ordinary Shares andthe Preference Shares may not be transferred to a pledgee. 4. The Priority Share may not be pledged Addresses. Notices and announcements. Register of Shareholders. Article 6. 1. Shareholders, pledgees and usufructuaries of Shares must supply their addresses, including their e-mail addresses (if any), to the Company in writing. 14 2. Notices, announcements and generally all communications intended for the persons referred to in paragraph 1 of this Article are to be sent in writing tothe addresses they have supplied to the Company. 3. The Board of Directors shall keep a register in which shall be recorded all particulars as prescribed by law or, if applicable, the rules and regulations ofthe stock exchange at which Shares are listed concerning shareholders, usufructuaries and pledgees. In the register shall also be recorded each and anyrelease from liability granted in respect of monies unpaid and not yet called on Shares. 4. The register of Shareholders shall be updated at regular times. 5. The Board of Directors shall be entitled to keep a part of the register of Shareholders outside the Netherlands if such is required for the compliancewith foreign legalization or the rules and regulations of the stock exchange at which the Shares are listed. Issue of Shares. Article 7. 1. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting has the power to resolve to issue Shares and todetermine the price of issue and the other terms of issue, which terms may include payment on Shares in a foreign currency. Upon receipt of a writtenproposal of the Board of Directors to this effect the General Meeting may transfer its aforesaid power to the Board of Directors for a period notexceeding five years. Such designation shall specify the number of Shares that may be issued and may also include the price (range) at which suchShares may be issued. The designation may be extended, from time to time, for periods not exceeding five years. Unless such designation providesotherwise, it may not be withdrawn. 2. Within eight (8) days following a resolution by the General Meeting to issue Shares or to designate another body of the Company, the Company shallfile the full text of such resolution at the office of the Commercial Register with which the Company is registered. Within eight (8) days after eachissue of Shares, the Company shall report the same to the office of said Commercial Register. 3. The provisions of paragraph 1 and 2 of this Article shall apply mutatis mutandis to the granting of rights to subscribe for Shares, but not to the issue ofShares to a person exercising a previously acquired right to subscribe for Shares. 4. The Company or its Subsidiaries cannot subscribe for Shares. 5. When Ordinary Shares are subscribed for, the amount of their par value must be paid at the same time and, in addition, if the Ordinary Share issubscribed at a higher amount, the difference between such amounts must be paid. It may be agreed that part of the amount to be paid on the PreferenceShares - such part not to exceed three fourths (3/4) of the par value - may remain unpaid until the Company shall make a call in respect of the moniesunpaid on the Preference Shares. Such arrangement may only be agreed prior to the resolution to issue Preference Shares and shall require the approvalof the body of the Company which has the power to resolve to issue at the time of making such agreement. 15 6. Calls upon the Shareholders in respect of any monies unpaid on their Shares shall be made by the Board of Directors by virtue of a resolution of theGeneral Meeting. 7. The body of the Company which has the power to resolve to issue Shares may resolve that payment on Shares shall be made by some other means thanpayment in cash or payments in a foreign (non-euro) currency. Pre-emptive right at issue of Shares. Article 8. 1. At the issue of any new Ordinary Shares, the statutory rights of pre-emption as laid down in Book 2 shall apply. At the issue of Preference Shares,including those against contribution in kind, each holder of Preference Shares shall have a pre-emptive right pro rata to the total number of PreferenceShares held by him as a portion of the total number of the issued and outstanding Preference Shares on the date of the resolution to issue the PreferenceShares. The pre-emption right of a holder of Preference Shares in respect of an issue of Preference Shares may not be limited. No pre-emption rightsshall apply in respect of the issue of the Priority Share. 2. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting may each time in respect of one particular issue ofOrdinary Shares, resolve to limit or to exclude the pre-emptive right of subscription for the Ordinary Shares, provided that such resolution is passed atthe same time as the resolution to issue the Ordinary Shares. If at a General Meeting at which a proposal to limit or exclude the pre-emptive right to subscribe for Ordinary Shares comes up for discussion and lessthan one half of the issued capital is represented, a resolution to limit or exclude the pre-emptive right may only be adopted by at least two-thirds ofthe votes cast. Any proposal to limit or exclude the pre-emptive right must contain a written explanation of the reasons for the proposal and the choice of theproposed price (or price range or formula for the determination of such price, including by reference to the market price of such Ordinary Shares as of afuture date or dates) of issue. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting can resolve that the pre-emptive right may also belimited or excluded by the Board of Directors, for a period not exceeding five years. Such designation may be renewed for subsequent periods not exceeding five years each. Unless the terms of the designation provide otherwise, it cannot be revoked. Within eight (8) days following a resolution by the General Meeting to limit or exclude the pre-emptive right or to designate the Board of Directors,the Company shall file the full text of such resolution at the office of the Commercial Register. 3. A share issue at which Shareholders may exercise a pre-emptive right and the period during which said right is to be exercised shall be announced bythe Company to all Shareholders of the relevant class of Shares either in writing or by a public announcement in a newspaper taking into account therules and regulations of the stock exchange at which Shares are listed. The pre-emptive right may be exercised 16 during the period to be determined by the body of the Company authorised to issue Shares, that period to be at least two weeks from the day followingthe date of despatch of the announcement. 4. The provisions of the preceding paragraphs of this Article shall apply mutatis mutandis to the granting of rights to take Shares. Transfer of Shares. Exercise of Shareholder’s rights. Article 9. 1. If Shares of any class are admitted or are reasonably expected - on relatively short notice - to be admitted to trading on a regulated market ormultilateral trading facility, as referred to in article 1:1 of the Financial Supervision Act (Wet financieel toezicht) or a system of a non-member statethat is comparable to a regulated market or multilateral trading facility, the transfer of a registered Ordinary Share or Preference Share or of a limitedright (beperkt recht) thereto shall require an instrument intended for such purpose and, save when the Company itself is a party to such legal act, thewritten acknowledgement by the Company of the transfer. The acknowledgement shall be made in the instrument or by a dated statement on theinstrument or on a copy or extract thereof mentioning the acknowledgement signed as a true copy thereof by a civil-law notary or the transferor. Service of such instrument of transfer, copy or extract on the Company shall be deemed to constitute such acknowledgement. 2. The transfer of the Priority Share requires a notarial deed executed by and in front of a notary practicing in the Netherlands to which each transferorand each transferee are a party. 3. Following a transfer referred to in paragraph 1 or paragraph 2 of this Article, the rights attached to the Shares concerned may not be exercised until theinstrument of transfer has been served upon the Company or until the Company has acknowledged the transaction in writing or has been deemed tohave acknowledged such transaction. The provision in the preceding sentence shall not apply if the Company itself has been a party to the transaction. Acquisition by the Company of its own Shares. Article 10. 1. Any acquisition by the Company of partly-paid Shares in its own capital shall be null and void. 2. Provided that the General Meeting has given the Board of Directors authorisation for this purpose, the Company may acquire fully paid-up Sharesprovided that: (a) the Company’s equity capital, reduced by the acquisition price, is not less than the sum of the issued and paid-up capital and the reserves to bemaintained pursuant to the law or the Articles of Association; (b) following the transaction contemplated, at least one issued share in the capital of the Company remains outstanding and is not held by theCompany; and (c) in case the Company is admitted to trading on a regulated market or multilateral trading facility, as referred to in article 1:1 of the FinancialSupervision Act (Wet 17 financieel toezicht) or a system from a non-member state that is comparable to a regulated market or multilateral trading facility, the par valueof the Shares to be acquired, already held by the Company or already held by the Company as pledgee or which are held by Subsidiaries, doesnot exceed fifty percent (50%) of the issued capital of the Company. 3. The factor deciding whether the acquisition is valid shall be the amount of the equity of the Company as shown in its most recently adopted balancesheet, reduced by the acquisition price of Shares in the capital of the Company and any payments from profit or reserves to others which may havebecome due by the Company and its Subsidiaries after the balance sheet date. If more than six months of a financial year have passed without the annual accounts having been adopted, the acquisition of own Shares underparagraph 2 of this Article shall not be permitted until such time as such most recent annual accounts have been so adopted. 4. The authorisation of the General Meeting, referred to in paragraph 2 of this Article, which shall be valid for a maximum of eighteen months (18) only,must specify how many Shares are permitted to be acquired, the manner in which they may be acquired and the permitted upper and lower limits of theprice. 5. The preceding paragraphs of this Article shall not apply in respect of (i) Shares which the Company may acquire gratuitously or by universalsuccession and (ii) Shares that are listed at a stock exchange which are acquired for the purpose of distribution of such Shares to employees of theCompany and/or its Subsidiaries pursuant to an employee option plan. 6. Any acquisition of Shares made in breach of the provisions of paragraph 2 of this Article shall be null and void. 7. Shares owned by the Company shall not bear any dividend rights unless rights of usufruct are created in respect of such Shares prior to the acquisitionby the Company, in which case the holder of usufruct shall be entitled to any dividends on the underlying Shares. Shares owned by the Company or itsSubsidiaries shall not bear any voting rights unless rights of usufruct were created in respect of such Shares prior to the acquisition of such Shares bythe Company or its Subsidiaries respectively. Reduction of capital. Article 11. 1. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting may resolve to reduce the issued capital by acancellation of Shares or by a reduction of the par value of the Shares by amendment of the Articles of Association. Such resolution to reduce theissued capital of the Company must indicate the Shares to which it relates and provisions for its implementation must be included. 2. A resolution to cancel Shares may only relate to i) Shares held by the Company, or ii) to all the Shares of a particular class, in respect of which theArticles of Association provide that the same may be cancelled against repayment of their par value. 18 3. As provided in clause (ii) of paragraph 2 of this Article 11, Class C Ordinary Shares may be cancelled against repayment of their par value. 4. If the General Meeting resolves to reduce the par value of the Shares by amendment of the Articles of Association - regardless whether this is donewithout redemption or against partial repayment on the Shares or upon release from the obligation to pay up the Shares - such reduction must be madepro rata on all Shares of a particular class. 5. A resolution for reduction of capital shall require a majority of at least two thirds of the votes cast, if less than one half of the issued capital isrepresented at the relevant meeting of Shareholders. BOARD OF DIRECTORS. Composition and Remuneration. Article 12. 1 The business and affairs of the Company shall be managed by a Board of Directors consisting of no less than eight (8) members and no more thantwelve (12) members including at least one (1) Executive Director and at least two (2) Non-Executive Directors. 2. Only individuals shall be eligible for appointment as Executive Director or Non-Executive Director. 3. The Executive Directors and the Non-Executive Directors shall be appointed by the General Meeting for a maximum period of three (3) years,provided however, that, unless such director has resigned at an earlier date, a Director shall cease to hold office on the date of the first General Meetingheld in the third year following the year in which he was appointed Director. Directors shall be immediately eligible for re-appointment at the GeneralMeeting at which they cease to hold office. 4 The Board of Directors shall have the power to appoint from its members a Chief Executive Officer and from its Non-Executive Directors a Chairmanof the Board. 5 The General Meeting shall adopt general guidelines in respect of the remuneration of the members of the Board of Directors and of theperson(s) referred to in paragraph 3 of Article 13 (the “Remuneration Policy”). 6. With due observation to the Remuneration Policy, the Board of Directors may establish a remuneration for the members of the Board of Directors inrespect of the performance of their duties. It being understood that, in accordance with the principle laid down in Article 13 paragraph 5, ExecutiveDirectors shall not participate in the decision making process relating to the remuneration of Executive Directors. 7. Directors may be suspended and/or removed from office by the General Meeting at any time, such resolution requiring a majority of two thirds (2/3) ofthe votes cast in a meeting, representing at least fifty percent (50%) of the issued and outstanding capital of the Company. The Director concernedshall be given the opportunity to account for his conduct at the General Meeting. For that purpose he may have himself assisted by a legal adviser. 19 Decision-making by the Board of Directors. Directors’ ceasing to hold office or being unable to act. Article 13. 1. If the Board of Directors consists of several members, resolutions of the Board of Directors shall require an absolute majority of the votes cast in ameeting where at least the majority of members of the Board of Directors is present or represented. Each Director shall have one vote. If the voting forand against a proposal is equally divided, another vote shall be taken if so demanded by any Director. 2. The Board of Directors shall draw up board rules to deal with matters that concern the Board of Directors internally. The rules of the Board of Directors may inter alia include an allocation of tasks among the members of the Board of Directors and shall containprovisions concerning the matter in which meetings of the Board of Directors are called and held. The rules of the Board of Directors may stipulate thatcertain resolutions of the Board of Directors may validly be passed by one or more Directors, provided that the relevant resolutions are within thescope of the task(s) allocated to this or these particular Director(s). 3. In the event that one or more Directors shall cease to hold office or be unable to act, the other or remaining Directors or the only other or remainingDirector shall be temporarily entrusted with the management of the Company. In the event that all Directors or the sole Director shall cease to hold office or be unable to act, the management of the Company shall be temporarilyentrusted to the person designated or to be designated for that purpose by the General Meeting. The provisions of the Articles of Association concerning the Board of Directors and the Director(s) individually shall apply mutatis mutandis to theperson referred to in this paragraph. Furthermore, that person shall be required to call a General Meeting as soon as possible, which General Meetingmay decide on the appointment of one or several new Directors. 4. The Board of Directors may pass resolutions in writing, provided that all members of the Board of Directors have been consulted on the proposedresolution(s) and none of the members of the Board of Directors have objected against this form of resolution. A resolution in writing by the Board ofDirectors requires a simple majority of the members of the Board of Directors. 5. Any Director with a conflict of interest in respect of the Company and/or its business shall refrain from participating in the decision making process ofthe Board of Directors in this particular matter. If as a direct result of the foregoing, no resolution can be adopted by the Board of Directors, suchresolution will be put before the General Meeting and subsequently the General Meeting can resolve on the matter. Decision by the Board of Directors subject to approval by the General Meeting Article 14 A. Decisions of the Board of Directors involving a major change in the Company’s identity or character are subject to the approval of the General Meeting,including: a. the transfer of the enterprise or practically the whole enterprise of the Company to third parties; 20 b. to enter or to terminate longstanding joint ventures of the Company or a Subsidiary with another legal entity or company or as fully liable partner in alimited partnership or a general partnership if this joint venture or termination of such a joint venture is of a major significance to the Company; c. to acquire or dispose of a participation in the capital of a company worth at least one third of the amount of the Company’s assets according to thebalance sheet with explanatory notes thereto, or if the Company prepares a consolidated balance sheet according to such consolidated balance sheetwith explanatory notes according to the last adopted annual account of the Company, by the Company or a Subsidiary. Decision by the Board of Directors subject to approval by the Priority Article 14B. Any decision of the Board of Directors to transfer all or substantially all of the assets of the Company to one or more third parties, including the sale of itssubsidiary: OOO Yandex, a company organised under the laws of the Russian Federation, is subject to the prior approval of the Priority; provided that noapproval shall be required in connection with any corporate reorganisation of the Company’s group so long as the business operations of the group continueto be conducted by one or more Russian companies that are, directly or indirectly, wholly owned by the Company. Duties and powers of the Directors. Article 15. 1. The Executive Directors shall be entrusted with and responsible for the day to day management of the Company. 2. The Board of Directors may install committees consisting of members of the Board of Directors, and/or management of the Company and/or itsSubsidiaries. 3. The Board of Directors may designate certain tasks and functions to the committees referred to in the previous paragraph of this Article. 4. The Board of Directors may appoint a company secretary to assist the Board of Directors. The company secretary will be admitted to meetings of the Board of Directors and the General Meeting. Representation. Article 16. 1. The Board of Directors shall represent the Company. The power to represent the Company shall also vest in each Executive Director individually. 2. If an Executive Director performs any transaction in a private capacity to which transaction the Company also is a party, or if an Executive Director,acting in his private capacity, conducts any legal action against the Company other than as referred to in Section 15 of Book 2, each other ExecutiveDirector shall have the power to represent the Company. 3. The Board of Directors may grant power of attorney for signature to one or several persons and may alter or revoke such power of attorney. 21 Indemnity and Insurance. Article 17. 1. To the extent permissible by law, the Company shall indemnify and hold harmless: a. each member of the Board of Directors, both former members and members currently in office; b. each person who is or was serving as an officer of the Company; c. each person who is or was serving as a proxy holder of the Company; d. each person who is or was a member of the board or supervisory board or officer of other companies or corporations, partnerships, jointventures, trusts or other enterprises by virtue of their functional responsibilities with the Company and or its Subsidiaries, (each of them, for the purpose of this Article only, an “indemnified person”), against any and all liabilities, claims, judgments, fines and penalties(“claims”) incurred by the indemnified person as a result of any threatened, pending or completed action, investigation or other proceeding, whethercivil, criminal or administrative (each, a “legal action”), brought by any party other than the Company itself or any Subsidiaries, in relation to acts oromissions in or related to his capacity as an indemnified person. 2. Claims will include derivative actions brought on behalf of the Company or any Subsidiaries against the indemnified person and claims by theCompany (or any Subsidiaries) itself for reimbursement for claims by third parties on the ground that the indemnified person was jointly liable towardthat third party in addition to the Company. 3. The indemnified person will not be indemnified with respect to claims insofar as they relate to the gaining in fact of personal profits, advantages orcompensation to which he was not legally entitled, or if the indemnified person shall have been adjudged to be liable for willful misconduct (opzet) orintentional recklessness (bewuste roekeloosheid). 4. Any expenses (including reasonable attorneys’ fees and litigation costs) (collectively, “expenses”) incurred by the indemnified person in connectionwith any legal action shall be settled or reimbursed by the Company, but only upon receipt of a written undertaking by that indemnified person that heshall repay such expenses if a competent court in an irrevocable judgment has determined that he is not entitled to be indemnified. Expenses shall bedeemed to include any tax liability which the indemnified person may be subject to as a result of his indemnification. 5. Also in case of a legal action against the indemnified person by the Company itself or any Subsidiary(s), the Company will settle or reimburse to theindemnified person his reasonable attorneys’ fees and litigation costs, but only upon receipt of a written undertaking by that indemnified person thathe shall repay such fees and costs if a competent court in an irrevocable judgment has resolved the legal action in favor of the Company or the relevantSubsidiary(s) rather than the indemnified person. 6. Expenses incurred by the indemnified person in connection with any legal action will also be settled or reimbursed by the Company in advance of thefinal disposition of such action, but only upon receipt of a written undertaking by that indemnified person that he shall repay such expenses if acompetent court in an irrevocable judgment has determined that he is not entitled to be indemnified. 22 Such expenses incurred by indemnified persons may be so advanced upon such terms and conditions as the Board of Directors decides. 7. The indemnified person shall not admit any personal financial liability vis-à-vis third parties, nor enter into any settlement agreement, without theCompany’s prior written authorization. The Company and the indemnified person shall use all reasonable endeavors to cooperate with a view to agreeing on the defense of any claims, but inthe event that the Company and the indemnified person would fail to reach such agreement, the indemnified person shall comply with all reasonabledirections given by the Company, in order to be entitled to the indemnity contemplated by this Article. 8. The indemnity contemplated by this Article shall not apply to the extent claims and expenses are reimbursed by insurers. 9. The Company will provide for and bear the cost of adequate insurance covering claims against the indemnified person, unless such insurance cannotbe obtained at reasonable terms. 10. This Article can be amended without the consent of the indemnified persons as such. However, the indemnity provided herein shall neverthelesscontinue to apply to claims and/or expenses incurred in relation to the acts or omissions by the indemnified person during the periods in which thisclause was in effect. 11. At its discretion, the Board of Directors may have the Company indemnify other members of the management team, not being members of the Board ofDirectors, or other employees, each in case of the Company or of a Subsidiary, comparable to the indemnification provided herein for the benefit ofother indemnified persons. GENERAL MEETING. Notice and venue of the General Meeting. Article 18. 1. Without prejudice to the provisions of Article 25, General Meetings shall be held as frequently as the Board of Directors may wish. The power to callthe General Meeting shall vest in the Board of Directors, in each Executive Director individually and/or the Chairman of the Board of Directors. 2. The Board of Directors may determine a registration date for the purpose of registration of Shareholders who can attend the relevant Meeting and inorder to establish the number of votes to be exercised at such General Meeting. In case the Board of Directors resolves to set a registration date for aGeneral Meeting, any Shareholder who wishes to attend such General Meeting must inform the Board of Directors of its intent to attend the GeneralMeeting. At the same time the registration date determines the number of votes that a Shareholder may cast in the General Meeting. The aforesaidregistration date may not be set less than twenty-eight (28) days prior to the date of the relevant General Meeting. Should the Board of Directorsresolve not to set a registration date, then all parties that can prove to hold Shares on the day of the General Meeting may attend the General Meetingand such Shareholders shall be able exercise votes on the basis of their Shares held on the day 23 of the General Meeting. 3. The Board of Directors must call a General Meeting: (a) if one or several Shareholders jointly representing at least one tenth of the issued capital so request the Board of Directors, that request tospecify the subjects to be discussed and voted upon; (b) within three months after the Board of Directors has considered it plausible that the equity capital of the Company has decreased to an amountequal to or less than one-half of the paid and called up part of the capital. If the General Meeting is not held within six weeks after the request referred to under (a), the applicants themselves may call the General Meeting -with due observance of the applicable provisions of the law and the Articles of Association - without for that purpose requiring authorisation from thePresident of the District Court. The provisions of paragraph 2 of this Article shall apply mutatis mutandis to the procedure of calling a GeneralMeeting referred to in the preceding sentence. 4. Any Shareholder(s) who hold at least one hundredth (1/100) of the issued capital of the Company or own Shares with a value of at least fifty millioneuro (EUR 50,000,000.00) may propose items for the agenda of the General Meeting. Such item for the agenda should together with an explanation besubmitted to the Board of Directors at least sixty (60) days prior to the day of the General Meeting at which it shall be addressed. The Board ofDirectors will include such items for the agenda in an equal manner as items on the agenda proposed by the Board of Directors. 5. Notice of the General Meeting must be given to each Shareholder. The term of notice must be at least fifteen (15) clear days before the day on whichthe meeting is held. Notice shall be given by means of letters, specifying the subjects to be discussed at the meeting. The notice should also containinformation on a formal registration date (if applicable) for the registration of Shareholders who can attend the relevant Meeting and in order toestablish the number of votes to be exercised at such General Meeting. 6. General Meetings shall be held in The Hague, Amsterdam, Rotterdam, Utrecht or at Schiphol Airport in the municipality of Haarlemmermeer. Entirelywithout prejudice to the provisions of paragraph 5 of this Article, any resolution passed at a General Meeting held elsewhere - in or outside theNetherlands - shall be valid only if the requirements of notice set out in paragraph 3 of this Article have been complied with and the entire issued andoutstanding share capital is represented. Admittance to and chairmanship of the General Meeting. Article 19. 1. The Shareholders are entitled to admittance to the General Meeting. The Directors of the Company also are entitled to admittance, with the exceptionof any Director who has been suspended, and admittance shall further be granted to any person whom the chairman of the meeting concerned hasinvited to attend the General Meeting or any part of that meeting. 24 2. If a Shareholder wishes to attend a General Meeting by proxy, he must issue a written power of attorney for that purpose, which power of attorney mustbe presented to the chairman of the meeting concerned. 3. The General Meeting shall be presided over by the Chairman of the Board. In case the Chairman of the Board is not available the Board of Directorsshall appoint the chairman of the General Meeting. 4. Unless a notarial record of the business transacted at the meeting is drawn up, or unless the chairman himself wishes to keep minutes of the meeting,the chairman shall designate a person charged with keeping the minutes. The minutes shall be adopted by the General Meeting at the same meeting or at a subsequent meeting, in evidence of which the minutes shall besigned by the chairman and the secretary of the meeting at which the minutes were adopted. 5. The Chairman of the General Meeting decides on all issues regarding admittance to the meeting, voting and the order of the meeting. Voting rights. Decision-making. Article 20. 1. Each Class A Ordinary Share and each Preference Share carries the right to cast one (1) vote. Each Class C Ordinary Share carries the right to cast nine(9) votes. Each Class B Ordinary Share carries the right to cast ten (10) votes. The Priority Share carries the right to cast one hundred (100) votes. 2. In determining the extent to which the Shareholders cast votes, are present or are represented, or the extent to which the share capital is represented theShares in respect of which no votes may be cast shall not be taken into account. 3. Unless the Articles of Association stipulate a larger majority, all resolutions of the General Meeting shall be passed by an absolute majority of thevotes cast. 4. Blank votes and invalid votes shall not be counted as votes. 5. Votes on business matters - including proposals concerning the suspension, dismissal or removal of persons - shall be taken by voice or acclamation,but votes on the election of persons shall be taken by secret ballot, unless the chairman decides on a different method of voting and none of thepersons present at the meeting object to such different method of voting. 6. If at the election of persons the voting for and against the proposal is equally divided, another vote shall be taken at the same meeting; if then againthe votes are equally divided, then - without prejudice to the provision in the following sentence of this paragraph - such person shall not be elected. If at an election of persons the vote is taken between more than two candidates and none of the candidates receive the absolute majority of votes,another vote - where necessary after an interim vote - shall be taken between the two candidates who have received the largest number of votes in theirfavour. If the voting for and against any other proposal than as first referred to in this paragraph is equally divided, that proposal shall be rejected. 25 7. The General Meeting may resolve to allow a Shareholder to attend and participate in the General Meeting by electronic means of communication, ifand to the extent the identity of the thus attending Shareholder can be verified by the Chairman of the Meeting. Electronic votes submitted to theBoard of Directors within twenty-eight (28) days of the General Meeting shall be considered to be issued at the General Meeting, provided the meansof communication allows the Chairman of the Meeting to verify the identity of the voting Shareholder. Shareholders’ proxy. Shares belonging to any community of property or joint estate. Article 21. 1. In respect of any or all of his Shares a Shareholder may give one or several persons written power of attorney to exercise any or all of the rightsattached to those Shares. Such power of attorney may not be given in respect of one and the same Share to more than one person simultaneously. Thepowers referred to in this paragraph may also vest in usufructuaries and pledgees of Class A Ordinary Shares. The Board of Directors may invokecertain rules on the registration of proxies as referred to in this paragraph. 2. Joint owners of any community of property or joint estate comprising Shares or a limited right to Shares may only exercise their rights by giving oneor several persons written power of attorney to exercise said rights. If power of attorney is given to several persons, such power of attorney must specifyin respect of which number of Shares each proxy is authorised to exercise the rights attached thereto. Decision-making outside a meeting. Article 22. Unless statutory provisions provide otherwise, any resolution which Shareholders entitled to vote can pass at a General Meeting may also be passed by themoutside a meeting, provided that they all express themselves in writing in favor of the proposal concerned. The persons who have passed a resolution outsidea meeting shall immediately inform the Board of Directors of that resolution. Meetings of holders of Class A Ordinary Shares, meetings of holders of Class B Ordinary Shares, meetings of holders of Class C Ordinary Shares andmeetings of the holder of the Priority Share. Article 23. 1. Meetings of holders of a particular class of Ordinary Shares shall be convened by the Board of Directors. Meetings of the holder of the Priority Sharemay be convened by the holder of the Priority Share. 2. The convocation shall take place not later than on the fifth (5) day prior to the day on which the meeting shall take place. 3. Notwithstanding the possibility for the holders of any specific class of Shares to agree to convene a meeting elsewhere and notwithstanding the optionto pass resolutions in writing in accordance with Article 22, any meeting shall be held in the Netherlands at the place notified in convocation. 26th 4. For the avoidance of doubt, the Priority may approve or decline to approve any Transfer, subscription or holding of Excess Shares hereunder in writingand without a meeting. 5. Articles 18 through 22 shall apply, mutatis mutandis, to any meeting referred to in this Article. Meeting of holders of Preference Shares. Article 24. 1. Meetings of holders of Preference Shares shall be convened by the Board of Directors or by a holder of one or more of the Preference Shares. 2. The convocation shall take place not later than on the fifth (5) day prior to the day on which the meeting shall take place. 3. Notwithstanding the possibility for the holders of Preference Shares to agree to convene a meeting elsewhere and notwithstanding the option to passresolutions in writing in accordance with Article 22, any meeting shall be held in the Netherlands at the place notified in convocation. 4. In all other respects Articles 18 through 22 shall apply mutatis mutandis. Financial Year. Annual accounts. Article 25. 1. The financial year of the Company shall be equal to the calendar year. 2. Each year within five months after the end of the Company’s financial year, save where this term is extended by a maximum of six months by theGeneral Meeting on account of special circumstances, the Board of Directors shall draw up annual accounts and an annual report on that financialyear. To these documents shall be added the particulars referred to in Section 392, sub-section 1, of Book 2. However, if the provisions of Section 403of Book 2 have been applied to the Company and if and to the extent that the General Meeting does not decide otherwise: a. the obligation to draw up the annual report; and b. the obligation to add to the annual accounts the particulars referred to in Section 392 of Book 2 shall not apply. If the Company qualifies as a legal entity in the terms of Section 396 sub-section 1 or Section 397 sub-section 1 of Book 2 the Company shall not berequired to make an annual report unless by law the Company must establish a works council or unless no later than six months from the start of thefinancial year concerned the General Meeting has resolved otherwise. 3. The annual accounts shall be signed by all Directors. If the signatures of one or more of the Directors are missing, this and the reason for such absenceshall be stated. 4. The Board of Directors shall ensure that the annual accounts and, if required, the annual report and the particulars added by virtue of Section 392 ofBook 2 shall be available at the office of the Company as soon as possible but not later than as from the date of notice calling the General Meetingintended for the discussion and approval thereof. Said documents shall be open to the inspection of the Shareholders 27th at the office of the Company and copies thereof may be obtained by them free of charge. Annual General Meeting. Approval of annual accounts. Article 26. 1. Each year at least one General Meeting shall be held, that meeting to be held within six (6) months after the end of the Company’s last expiredfinancial year. 2. The annual accounts shall be adopted by the General Meeting. Profits and losses. Article 27. 1. The distributable profit of the Company shall be at the disposal of the General Meeting. The Board of Directors determines the amount of the profit ofthe Company that shall be allocated to the profit reserves and the amount of profit available for distribution. 2. The Company may distribute profit only if and to the extent that its equity exceeds the sum of the paid and called-up part of the issued capital and thereserves which must be maintained by virtue of the law. 3. If and when the Board of Directors proposes to allocate or distribute a profit, first of all the holders of Preference Shares shall be entitled to an amountequal to the 12-month European Inter Bank Offered Rate per first day of the financial year of the Company in relation to which the relevant dividendentitlement is calculated, increased with two hundred (200) basis points, of the issued and paid-up capital of the Preference Shares. The holders ofOrdinary Shares and the Priority Share shall be entitled pari passu to the remainder profits of the Company after any distribution is made pursuant tothe first sentence of this paragraph, pro rata to the total number of Class A Ordinary Shares, Class B Ordinary Shares, Class C Ordinary Shares and/orthe Priority Share held, albeit that the holders of Class C Ordinary Shares shall be entitled to a maximum amount of one eurocent (EUR 0.01) perClass C Ordinary Share out of the profit in any one financial year. 4. Dividends may be paid only after approval and adoption of the annual accounts which show that they are justified. 5. For the purposes of determining the allocation of profits, any Shares held by the Company (except as otherwise provided in paragraph 7 of Article 10),and any Shares of which the Company has a usufruct, shall not be taken into account. 6. The Board of Directors may resolve to declare interim dividends out of the profits realised in the current financial year. Dividend payments as referredto in this paragraph may be made only if the provision in paragraph 2 of this Article has been met as evidenced by an interim statement of assets andliabilities as referred to in Section 105 subsection 4 of Book 2. 7. Any distributions made from the Company reserves shall be made only at the proposal of the Board of the Directors and with due observance of theprovisions of paragraph 3 of this Article. 28 8. Unless the General Meeting sets a different term for that purpose, dividends shall be made payable within thirty (30) days after they are declared. 9. The Board of Directors may resolve that dividends are satisfied in whole or in part by the distribution of assets or the issue of Shares. 10. Any deficit may be set off against the statutory reserves only if and to the extent permitted by law. Amendment of Articles of Association. Merger. Demerger. Division. Article 28. 1. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting may resolve to amend the Articles of Association, toconclude a legal merger or demerger or to dissolve the Company in the terms of Part 7 of Book 2. 2. For the adoption of a resolution to amend the Articles of Association, to conclude a legal merger or demerger, in the terms of Part 7 of Book 2, or todissolve the Company, a two/thirds (2/3) majority of the votes cast in the General Meeting is required. 3. For the adoption of a resolution to amend the Articles of Association in which (a) the rights, including but not limited to the calculation of entitlementto any profits, of holders of Class A Ordinary Shares are taken away/affected, including but not limited to any change in the dividend or liquidationentitlement of the holders of Class B Ordinary Shares or Class C Ordinary Shares; (b) the definitions of “Affiliate”, “Initial Qualified Holder”, “Non-Qualified B Holder”, “Permitted Transferee”, “Qualified B Holder” or “Transfer” are changed; (c) any amendment is made to Article 4A, Article 4B orthis Article 28; or (d) the number of authorized Class B Ordinary Shares is to be increased; the prior approval of the Meeting of holders of Class AOrdinary Shares is required, which resolution requires a three/fourth (3/4) majority of the votes cast at such meeting. 4. For the adoption of a resolution to amend the Articles of Association in which the rights of the Priority are affected (including but not limited to thenumber of Priority Shares included in the authorized capital of the Company), the prior approval of the Priority is required. 5. For the adoption of a resolution to amend the Articles of Association in which the rights of the Preference Shares are affected (including but notlimited to the number of Preference Shares included in the authorized capital of the Company), the prior approval of the Meeting of holders ofPreference Shares is required. Winding up and liquidation. Article 29. 1. The General Meeting shall have the power to resolve to wind up the Company, provided with due observance of the requirement laid down inArticle 28. 2. Unless otherwise resolved by the General Meeting or unless otherwise provided by law, the Directors of the Company shall be the liquidators of theCompany. 3. The surplus assets remaining after (i) all the Company’s liabilities have been satisfied, (ii) all profit reserves and other dividend entitlements have beendistributed, shall be 29 divided among the holders of the Ordinary Shares pro rata to the total number of Class A Ordinary Shares, Class B Ordinary Shares and/or Class COrdinary Shares they hold, albeit that the holders of Class C Ordinary Shares shall be entitled to a maximum amount of one eurocent (EUR 0.01) perClass C Ordinary Share. 4. After completion of the liquidation the books, records and other data-carriers of the dissolved Company shall for a period of seven years remain in thecustody of the person whom the liquidators have appointed for that purpose in writing. 30 Exhibit 8.1 SUBSIDIARIES OF YANDEX N.V. Name of Subsidiary(1) Jurisdiction of OrganizationYandex LLCRussiaGIS Technology LLCRussiaYandex.Probki LLC(2)RussiaYandex.Ukraine LLCUkraineYandex DC LLCRussiaSPB Software LtdHong KongYandex Europe AGSwitzerlandYandex Europe B.V.The NetherlandsYandex Inc.Delaware, USASPB Software Inc.Nevada, USAYandex Zurich AGSwitzerlandYandex Reklamcilik Hizmetleri LŞTurkeyYandexBel LLC(2)BelarusYandex.Technology GmbHGermanyKinopoisk LLCRussiaYandex OyFinlandYandex Auto.ru AGSwitzerlandKitLocate Ltd.Israel (1) Directly or indirectly held (2) Yandex N.V. owns a 99.99% interest Exhibit 12.1 Certification by the Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Arkady Volozh, certify that: 1. I have reviewed this annual report on Form 20-F of Yandex N.V. (the “Company”); 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 thestatements 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 financialcondition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 Companyand have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring 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, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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 Company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theCompany’s auditors and the audit committee of the Company’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 toadversely affect the Company’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 Company’s internal control overfinancial reporting. Date: April 30, 2015 By:/S/ ARKADY VOLOZHName:Arkady VolozhTitle:Chief Executive Officer Exhibit 12.2 Certification by the Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Greg Abovsky, certify that: 1. I have reviewed this annual report on Form 20-F of Yandex N.V. (the “Company”); 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 thestatements 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 financialcondition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct 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 Companyand have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring 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, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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 Company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theCompany’s auditors and the audit committee of the Company’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 toadversely affect the Company’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 Company’s internal control overfinancial reporting. Date: April 30, 2015 By:/S/ GREG ABOVSKYName:Greg AbovskyTitle:Chief Financial Officer Exhibit 13.1 Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 20-F of Yandex N.V. (the “Company”) for the year ended December 31, 2014, as filed with the U.S. Securitiesand Exchange Commission on the date hereof (the “Report”), the undersigned Arkady Volozh, as Chief Executive Officer of the Company, and GregAbovsky, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that to the best of his knowledge: (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. Date: April 30, 2015 By:/s/ Arkady VolozhName:Arkady VolozhTitle:Chief Executive Officer By:/s/ Greg AbovskyName:Greg AbovskyTitle:Chief Financial Officer Exhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-177622 on Form S-8 and No. 333-187184 on Form F-3 of our reports datedApril 30, 2015, relating to the consolidated financial statements of Yandex N.V. and subsidiaries (the “Company”) (which report expresses an unqualifiedopinion on the financial statements and includes an explanatory paragraph referring to translations of Russian ruble amounts into U.S. dollar amountspresented solely for the convenience of the readers in the United States of America) and the effectiveness of the Company’s internal control over financialreporting appearing in this Annual Report on Form 20-F of the Company for the year ended December 31, 2014. /s/ ZAO Deloitte & Touche CIS Moscow, RussiaApril 30, 2015
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