TABLE OF CONTENTSYANDEX N.V. INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 20-F(Mark One) ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OR☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to OR☐SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report Commission 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 which registeredClass A Ordinary Shares NASDAQ Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act. NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act. Class A Ordinary SharesIndicate 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)Title of each class Number of shares outstandingClass A 277,579,206Class B 45,037,734 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐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 of 1934. Yes ☐ No ☒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 such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐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 the Exchange Act(check one):Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Indicate by check mark which basis of accounting the registrant has used to prepared the financial statements included in this filing:U.S. GAAP ☒International Financial Reporting Standards ☐as issued by the International AccountingStandards BoardOther ☐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 ☐ Item 18 ☐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 ☐ No ☒(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 of securities under aplan confirmed by a court. Yes ☐ No ☐ In addition, we had 7,439,813 Class A shares held in treasury and 560,235 Class C shares issued and fully paid as of December 31, 2016. Our Class C shares are issued from time to time solely for technical purposes, tofacilitate the conversion of 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 shares areoutstanding, 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. (1) Table of ContentsTABLE OF CONTENTS PagePART I. Item 1.Identity of Directors, Senior Management and AdvisersN/AItem 2.Offer Statistics and Expected TimetableN/AItem 3. Key Information3 Item 4. Information on the Company32 Item 4A. Unresolved Staff Comments50 Item 5. Operating and Financial Review and Prospects50 Item 6. Directors, Senior Management and Employees72 Item 7. Major Shareholders and Related Party Transactions78 Item 8. Financial Information83 Item 9. The Listing84 Item 10. Additional Information85 Item 11. Quantitative and Qualitative Disclosures About Market Risk93 Item 12.Description of Securities other than Equity SecuritiesN/APART II. Item 13.Defaults, Dividend Arrearages and DelinquenciesN/AItem 14. Material Modifications to the Rights of Security Holders and Use of Proceeds93 Item 15. Controls and Procedures93 Item 16A. Audit Committee Financial Expert96 Item 16B. Code of Ethics96 Item 16C. Principal Accountant Fees and Services96 Item 16D.Exemptions from the Listing Standards for Audit CommitteesN/AItem 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers96 Item 16F. Change in Registrant’s Certifying Accountant96 Item 16G. Corporate Governance96 Item 16H.Mine Safety DisclosureN/APART III. Item 17. Financial Statements110 Item 18. Financial Statements110 Item 19. Exhibits110 In this Annual Report on Form 20‑F (this “Annual Report”), references to “Yandex,” the “company,” “we,” “us,” orsimilar terms are to Yandex N.V. and, as the context requires, its wholly owned subsidiaries.Our consolidated financial statements are prepared in accordance with U.S. GAAP and are expressed in Russianrubles. In this Annual Report, references to “rubles” or “RUB” 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 endedDecember 31 of the calendar year specified.This Annual Report includes market data reported by Liveinternet.ru (February 2017), the Association of RussianCommunication Agencies (AKAR) (November 2016) and the Russian Federal State Statistics Service (Rosstat) (January2017). 2 Table of ContentsForward‑Looking StatementsThis 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 otherwords that convey judgments about future events or outcomes indicate such forward‑looking statements. Forward‑lookingstatements 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 broadbandusers in the countries in which we 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 ourrevenues;·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 may differ materially from those stated in or implied by such forward‑looking statements as aresult of a variety of factors, including those described under Part I, Item 3.B. “Risk Factors” and elsewhere in this AnnualReport.We operate in an evolving environment. New risks emerge from time to time, and it is not possible for ourmanagement to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially from those contained in any forward‑looking statements.You should not rely upon forward‑looking statements as predictions of future events. We undertake no obligation to updateor revise any forward‑looking statements, whether as a result of new information, future events or otherwise.PART I. Item 3. Key Information.A.Selected Consolidated Financial and Statistical DataThe selected consolidated statements of income data for the years ended December 31, 2014, 2015 and 2016 and theselected consolidated balance sheet data as of December 31, 2015 and 2016 are derived from our audited consolidatedfinancial statements appearing elsewhere in this Annual Report. The selected consolidated balance sheet data as ofDecember 31, 2012, 2013 and 2014 and consolidated statements of income data for the years ended December 31, 2012 and2013 are derived from our audited consolidated financial statements that are not included in this Annual Report, afteradjustment for the retrospective adoption of Accounting Standard Updates 2015‑03 and 2015‑17.Ruble amounts have been translated into U.S. dollars at a rate of RUB 60.6569 to $1.00, the official exchange ratequoted as of December 31, 2016 by the Central Bank of the Russian Federation. 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 thedates indicated, and have been provided solely for the convenience of the reader. On March 17, 2017, the exchange rate wasRUB 58.2437 to $1.00. See “Risk Factors—Emerging markets, such as Russia, are generally subject to greater financial,economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on ourbusiness, financial condition and results of operations.”3 Table of ContentsThe following selected consolidated financial data should be read in conjunction with our “Operating and FinancialReview and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this AnnualReport. Our financial statements are prepared in accordance with U.S. GAAP. These historical financial results are notnecessarily indicative of the results to be expected in any future period. Year ended December 31, 2012 2013 2014 2015 2016 RUB RUB RUB RUB RUB $ (in millions, except share and per share data) Consolidated statements ofincome data: Revenues: 28,767 39,502 50,767 59,792 75,925 1,251.7 Operating costs and expenses: Cost of revenues(1) 7,188 10,606 14,336 16,810 19,754 325.7 Product development(1) 4,274 5,827 8,842 13,421 15,832 261.0 Sales, general andadministrative(1) 4,900 6,537 7,782 11,601 17,885 294.8 Depreciation andamortization 2,951 3,695 4,484 7,791 9,607 158.4 Goodwill impairment — — — 576 — — Total operating costs andexpenses 19,313 26,665 35,444 50,199 63,078 1,039.9 Income from operations 9,454 12,837 15,323 9,593 12,847 211.8 Interest income, net 1,002 1,717 856 1,744 1,655 27.3 Other income/(loss), net(2) 118 2,159 6,296 2,259 (3,395) (56.0) Income before income taxes 10,574 16,713 22,475 13,596 11,107 183.1 Provision for income taxes 2,351 3,239 5,455 3,917 4,324 71.3 Net income 8,223 13,474 17,020 9,679 6,783 111.8 Net loss attributable tononcontrolling interests — — — — 15 0.2 Net income attributable toYandex N.V. 8,223 13,474 17,020 9,679 6,798 112.0 Net income per Class A andClass B share: Basic 25.21 41.25 53.30 30.39 21.19 0.35 Diluted 24.50 40.27 52.27 29.90 20.84 0.34 Weighted average number ofClass A and Class B sharesoutstanding: Basic 326,210,948 326,657,778 319,336,782 318,541,887 320,788,967 320,788,967 Diluted 335,690,596 334,571,212 325,610,277 323,713,437 326,136,949 326,136,949 (1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share‑basedcompensation expense of: 2012 2013 2014 2015 2016 RUB RUB RUB RUB RUB $ Cost of revenues 33 61 101 168 193 3.2 Product development 221 435 780 1,860 2,238 36.9 Sales, general andadministrative 122 258 329 690 991 16.3 (2)A major component of other income, net is foreign exchange gains and losses generally resulting from changes in thevalue of the U.S. dollar compared with the Russian ruble. Because the functional currency of our operating subsidiariesin Russia is the Russian ruble, changes in the ruble value of these subsidiaries’ monetary assets and liabilities that aredenominated in other currencies (primarily U.S. dollar‑denominated cash, cash equivalents and term depositsmaintained in Russia) due to exchange rate fluctuations are recognized as foreign exchange gains or losses in ourstatement of income. For example, in 2016, other income, net includes RUB 3,834 million of foreign exchange lossesarising from the significant appreciation of the Russian ruble compared to the U.S. dollar in that year. In 2015, otherincome, net included a RUB 1,835 million gain arising from the depreciation of the Russian ruble compared to the U.S.dollar in that year. Although the U.S. dollar value of our U.S. dollar denominated cash,4 Table of Contentscash equivalents and term deposits are not impacted by these currency fluctuations, they result in upward and downwardrevaluations of the ruble equivalent of these U.S. dollar denominated monetary assets. As of December 31, 2012 2013 2014 2015 2016 RUB RUB RUB RUB RUB $ (in millions) Consolidated balance sheet data(1): Cash and cash equivalents 7,425 33,394 17,645 24,238 28,232 465.4 Term deposits (current and non-current) 14,959 15,180 31,526 33,549 31,769 523.7 Total assets 43,938 70,769 94,594 111,818 114,108 1,881.2 Total current liabilities 6,678 6,899 9,791 11,669 14,622 241.1 Total non-current liabilities(2) 213 17,273 29,067 30,052 20,894 344.4 Redeemable noncontrolling interests — — — — 1,506 24.8 Total shareholders’ equity 37,047 46,597 55,736 70,097 77,086 1,270.9 (1)Prior periods have been reclassified to reflect current period presentation. Balances related to assets held for sale (note 4to our consolidated financial statements) are reclassified from their historical presentation to assets held for sale andliabilities related to assets held for sale. Balances related to convertible debt issuance costs are reclassified for theretrospective adoption of Accounting Standard Update 2015‑03 related to the presentation of deferred debt issuancecosts. Balances related to deferred tax assets and liabilities are reclassified for the retrospective adoption of AccountingStandard Update 2015‑17 related to the presentation of deferred taxes as non‑current.(2)The total non‑current liabilities as of December 31, 2013, 2014, 2015 and 2016 mainly result from our convertible bondoffering. Please refer to note 11 to our consolidated financial statements.Exchange Rate InformationOur business is primarily conducted in Russia and almost all of our revenues are denominated in Russian rubles. Wehave presented our most recent annual results of operations in U.S. dollars for the convenience of the reader. Unless otherwisenoted, all conversions from RUB to U.S. dollars and from U.S. dollars to RUB in this Annual Report were made at a rate ofRUB 60.6569 to $1.00, the official exchange rate quoted by the Central Bank of the Russian Federation as of December 31,2016. On March 17, 2017, the exchange rate was RUB 58.2437 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 thedates indicated.The following table presents information on the exchange rates between RUB and the U.S. dollar for the periodsindicated as quoted by the Central Bank of the Russian Federation: RUB per U.S. dollar Period Period-end Average Low High 201230.3731.0934.0428.95201332.7331.8533.4729.93201456.2638.4267.7932.66201572.8860.9672.8849.18201660.6667.0383.5960.27September 201663.1664.6065.8763.16October 201662.9062.6863.4062.05November 201664.9464.3765.8663.20December 201660.6662.2065.2460.27January 201760.1659.9660.6659.15February 201757.9458.4060.3156.77March 2017 (through March 17)58.2458.7259.2257.96 See “Risk Factors—Emerging markets, such as Russia, are generally subject to greater financial, economic, legal andpolitical risks than more developed markets. Such risks may have a material adverse effect on our business, financialcondition and results of operations.” for a discussion of the foreign currency exchange rate risks and uncertainties ourbusiness faces.5 Table of ContentsB.Risk FactorsInvesting in our Class A shares involves a high degree of risk. The risks and uncertainties described below andelsewhere in this Annual Report, including in the section headed “Operating and Financial Review and Prospects”, couldmaterially adversely affect our business. These are not the only risks that we face; additional risks and uncertainties ofwhich we are unaware, or that we currently deem immaterial, may also become important factors that affect us. Any of theserisks 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 EconomyEmerging markets, such as Russia, are generally subject to greater financial, economic, legal and political risks than moredeveloped markets. Such risks may have a material adverse effect on our business, financial condition and results ofoperations.Emerging markets such as Russia are subject to greater risks than more developed markets, including financial,economic, legal and political risks. Such risks or an increase in the perceived risks associated with investing in emergingeconomies could dampen foreign investment and adversely affect the economies of the countries in which we operate. Forexample, the current geopolitical situations in Ukraine, Turkey and Syria, as well as volatility in oil prices (to which theRussian economy is particularly sensitive), may continue to have deleterious macroeconomic and other effects on the regionsin which we operate, including increased volatility in currency values and a weaker overall business environment. In 2014and 2015, Russia experienced an economic downturn characterized by substantial depreciation of its currency, sharpfluctuations of interest rates, a decline in disposable income, a steep decline in the value of shares traded on its stockexchanges, a material increase in the inflation rate, and a decline in the gross domestic product. In 2016 and through the firstmonths of 2017 some of those economic trends reversed or moderated, with the ruble strengthening, oil prices increasing,inflation rates declining significantly and the rate of decline in gross domestic product moderating. In addition, internationalsanctions have been imposed on identified parties and business sectors in Russia in connection with the geopoliticalsituation in Ukraine, as described below.In connection with the current economic situation, in 2016 the Russian ruble appreciated against the US dollar by20%, after depreciating materially during the course of 2014 and 2015. Although our revenues and expenses are bothprimarily denominated in Russian rubles, including our personnel expenses, we may have to increase our personnel expensesin order to better compete with other companies which denominate their personnel expenses in currencies which appreciatein relation to the Russian ruble. Also, the majority of our rent expenses, including the lease for our Moscow headquarters, aredenominated in U.S. dollars, and a major portion of our capital expenditures, primarily for servers and networking equipment,although payable in rubles, is for imported goods and therefore can be materially affected by changes in the value of theruble. In addition, our expenses related to the development of our business internationally are often denominated in othercurrencies, including U.S. dollars and Euros, as well as the consideration we have paid in connection with a number of ouracquisitions of other businesses to date has been, and future acquisition consideration may be, 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, financialcondition and results of operations. See “Operating and Financial Review and Prospects—Quantitative and QualitativeDisclosures About Market Risk”On December 11, 2014, the Central Bank of Russia raised its key rate to 10.5%, followed by a further sharp increaseon December 16, 2014 to 17%. During 2015 and 2016 the rate was gradually lowered to 10.0% as of December 31, 2016.Further volatility of interest rates may adversely affect our ability to borrow funds if necessary or desirable, and mayadversely affect the spending decisions of both advertisers and consumers. In the second half of 2016 and early 2017,Standard & Poor’s, Moody’s Investment Services and Fitch Ratings all changed the outlook for Russia’s sovereign creditratings from negative to stable, while just recently, in March 2017, Standard & Poor’s changed its outlook from stable topositive. Fitch Ratings remains the only large credit rating agency to rate Russia in the investment grade category, albeit atthe lowest possible level in this rating.The slowdown of the Russian economy in recent periods has adversely affected our results of operations. Inaddition, these conditions may continue to depress or encourage volatility in our share price and in equity markets ingeneral.6 Table of ContentsAdoption and maintenance of embargo, economic or other sanctions, in particular with respect to the conflict in Ukraine,as well as similar measures against the countries in which we operate, may have a material adverse effect on our business,financial condition and results of operations.Significant uncertainty exists surrounding the current geopolitical situation in Ukraine. The United States, theEuropean Union and certain other countries have imposed economic sanctions on certain Russian government officials,private individuals and Russian companies, as well as “sectoral” sanctions affecting specified types of transactions withnamed participants in certain industries, including named Russian financial institutions, and sanctions that prohibit mostcommercial activities of U.S. and E.U. persons in Crimea and Sevastopol. There is significant uncertainty regarding theextent or timing of any potential further economic or trade sanctions, or the ultimate outcome of the Ukrainian crisis.Political and economic sanctions may affect the ability of our international customers to operate in Russia, which couldnegatively impact our revenue and profitability. Sanctions could also impede our ability to effectively manage our legalentities and operations in and outside of Russia. We are domiciled in the Netherlands, while our wholly owned principaloperating subsidiary is organized under the laws of the Russian Federation, and several of our other subsidiaries areincorporated in other countries that have imposed economic sanctions on the Russian Federation. Although neither ourparent company nor our principal operating subsidiary or other subsidiaries are targets of sanctions, our business has beenadversely affected by the impact of sanctions on the broader economy in Russia. In addition, Yandex.Money, our jointventure with Sberbank, is subject to U.S. sectoral sanctions.In 2015 the Russian President introduced certain restrictions on the import of Turkish goods into Russia, as well ason the operations of Turkish companies in Russia and flight connections between the two countries, some of which weresubsequently lifted. On January 1, 2016 restrictions on the import of food products from Ukraine into Russia came into force,and the free trade regime between Ukraine and Russia was suspended by Russian authorities. Although these actions by theRussian authorities do not directly limit our operations in Turkey or Ukraine, if these countries adopt reciprocal measuresthat affect Russia or Russian companies, such measures could materially adversely affect our operations in Turkey orUkraine.Political, civil or military conflicts between Russia and other countries could also negatively affect economies inthe region, including the Russian economy. This, in turn, may result in a general lack of confidence among internationalinvestors in the region’s economic and political stability and in Russian investments generally. Along with potential officialgovernment sanctions on Russia, U.S. and foreign investors may be pressured to reduce or withdraw their investments inRussia. 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.Inflation may increase our costs and exert downward pressure on our operating margins.The Russian economy has generally been characterized by high rates of inflation in recent years. According to theRussian Federal State Statistics Service, Rosstat, the consumer price index in Russia increased by 11.4% and 12.9% in 2014and 2015, respectively, and by 5.4% in 2016. Because substantially all of our operations are in Russia, our costs are sensitiveto increases in prices in Russia. As a result, high rates of inflation increase our costs, and these increases in cost couldnegatively impact our operating margin.Risks Related to Our Business and IndustryWe face significant competition from major global and Russian companies, including Google and Mail.ru, which couldnegatively affect our business, financial condition and results of operations.We face strong competition in various aspects of our business from global and Russian companies that provideinternet services and content, including search services.Currently, we consider our principal competitors to be Google and Mail.ru. In addition, our business units, whichinclude Taxi, Classifieds and E-commerce, face significant competition in their respective business areas. In particular, Taxifaces competition from Uber and Gett in Russia, as well as a variety of other taxi and ride-sharing operators and dispatchservices; our Classifieds services face competition from a range of online and offline classified services, including Avito,CIAN (in real estate), and Drom.ru (in automobile sales); and E-commerce faces competition from online retailers andmarketplaces, including AliExpress and Avito, as well as offline retailers. In addition, it has7 Table of Contentsbeen recently speculated in the press that Sberbank and AliExpress are considering an e-commerce joint venture, whichcould potentially compete with E-commerce.Of the large global internet companies, we consider Google to be our principal competitor in the market for desktopand mobile internet search, and for performance‑based advertising, online advertising network revenues, advertisingintermediary services, distribution arrangements and other services. According to Liveinternet.ru, Google’s share of theRussian search market, based on search traffic generated, was 37.2% for the full year 2016, compared with our market share of56.4%. Google conducts extensive online and offline advertising campaigns in Russia. In recent years, Google hasaggressively marketed its products and services, including Chrome browser in which its search engine is the default searchfunction, mobile application, as well as maps and navigation products, leading to increased competition.With Android, its popular mobile platform, Google exerts significant influence over the increasingly importantmarket for mobile and location‑based search and advertising, including through its global arrangements with manufacturersof mobile devices and network operators to preinstall on an exclusive basis a set of Google’s mobile applications. We expectthat Google will continue to use its brand recognition and global financial and engineering resources to competeaggressively with us. In addition to Google, we also face competition, albeit less intense, from the Russian and internationalbusinesses of Microsoft and Yahoo!See also “—The competition to capture market share on mobile devices is intense, and if we are not successful inachieving substantial reach among users and monetizing search and other services on mobile devices, our business, financialcondition and results of operations could be adversely affected.”On the domestic side, our principal competitor is Mail.ru Group. Although we power paid search on Mail.ru Groupproperties and monetize a number of Mail.ru Group properties through our Yandex Advertising Network, we also competewith Mail.ru Group for online advertising budgets, allocated between social networks and search. In addition, Mail.ru Groupoffers a wide range of internet services, the most popular Russian web mail service, and other services that are comparable toours. Mail.ru’s search market share was 6.3% and 5.4% in 2015 and 2016, respectively. Although we have partnerships with anumber of social networking sites and serve ads on some of these sites, we also view them as increasingly significantcompetitors. In light of their large audiences and the significant amount of information they can access and analyzeregarding their users’ needs, interests and habits, we believe that they may be able to offer highly targeted advertising thatcould create increased competition for us. The popularity of such sites may also reflect a growing shift in the way in whichpeople find information, get answers and buy products, which may create additional competition to attract users.We cannot guarantee that we will be able to continue to compete effectively with current and future internetcompanies that may have greater ability to attract and retain users, greater name recognition, more personnel and greaterfinancial and other resources. If our competitors are successful in providing similar or better search results and other internetservices compared with those we offer, we could experience a significant decline in user traffic. Any such decline in trafficcould negatively affect our 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 achieving substantialreach among users and monetizing search and other services on mobile devices, our business, financial condition andresults of operations could be adversely affected.Users are increasingly accessing the internet through mobile and other devices rather than desktop and laptoppersonal computers, including through smartphones, wearable devices, and handheld computers such as tablets, as well asthrough video game consoles and television set‑top devices. Such devices have different characteristics than desktop andlaptop personal computers (including screen size, operating system, user interface and use patterns). Tailoring our productsand 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 tousers, advertisers, manufacturers or distributors of devices than those offered by our competitors or than our desktopofferings. The percentage of our total search traffic that was generated from mobile devices increased from approximately27% in the fourth quarter of 2015 to approximately 31% in the fourth quarter of 2016, while the percentage of our searchrevenues generated from mobile devices increased from approximately 19% to approximately 25% between those periods.8 Table of ContentsEach manufacturer or distributor of mobile or other devices may establish unique technical standards for its devices,and as a result our products and services may not work or be viewable on these devices. Some manufacturers may also electnot to include our products on their devices, or may be prohibited from doing so pursuant to their agreements with otherparties.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 asingle package for pre installation by device manufacturers, as well as employing exclusive dealing and other restrictivepractices to increase its search market share and ensure the presence of its other services on Android devices. In September2015, FAS determined that Google had breached Russian antitrust laws. Google was ordered by FAS to refrain from anti-competitive behavior and to take action to restore competition and allow third party services such as Yandex search to bepre-installed on Android devices. Google appealed FAS’s decision to the Arbitrazh Court of Moscow and then to the NinthArbitrazh Court of Appeal: both appeals were unsuccessful for Google. Google is further appealing the FAS’s decision. Thereis no assurance that following a final decision from the court we will succeed in maintaining or materially increasing ourmarket share on mobile devices.In addition, consumers are increasingly accessing content directly via applications, or “apps”, tailored to particularmobile devices or in closed social media platforms, which could affect our share of the search market over time. As newdevices and platforms are continually being released, it is difficult to predict the challenges we may encounter in adaptingour products and services and developing competitive new products and services. See also “—As the internet evolves, anincreasing amount of online content may be held in closed social networks, mobile apps or stored in proprietary documentformats, which may limit the effectiveness 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 productsand services. If we are unable to attract and retain a substantial number of device manufacturers, distributors and users to ourproducts and services, or if we are slow to develop products and technologies that are more compatible with such devices andplatforms, we will fail to capture the opportunities available as consumers and advertisers transition to a dynamic,multi‑screen environment. Furthermore, given the importance of distribution and application pre‑installation arrangementswith the most popular device manufacturers for successful operation of our business, failure to reach such arrangements mayadversely affect 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 ouroperating margin.We expect that our revenue growth rate will continue to decline over time as a result of a number of factors,including continuing macroeconomic challenges in Russia, challenges in maintaining our growth rate as our revenuesincrease to higher levels, increasing competition, changes in the nature of queries, the evolution of the overall onlineadvertising market and the declining rate of growth in the number of internet users in Russia as overall internet penetrationincreases.Other factors which may cause our operating margin to fluctuate or decline include:·changes in the proportion of our advertising revenues that we derive from the Yandex ad network comparedwith our own websites. In periods in which our Yandex ad network revenues grow more rapidly than those fromour own sites, our operating margin generally declines because the operating margin we realize on revenuesgenerated from partner websites is significantly lower than the operating margin generated from our ownwebsites, as a result of traffic acquisition costs (TAC) that we pay to our partner websites. Over several pastyears our partner TAC was above 50% of our online advertising network revenues. The margin we earn onrevenue generated from the Yandex ad network could also decrease in the future if we are required to share withour partners a greater percentage of the advertising fees generated through their websites;·investments we make in our business units, including in particular Taxi;9 Table of Contents·increased depreciation and amortization expense related to capital expenditures for many aspects of ourbusiness, particularly the expansion 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 servicesin Russia, to build and expand brand awareness in other countries where we operate and to respond tocompetitive pressures, if these efforts do not drive revenue growth in the manner we anticipate;·expenses in connection with the launch of new products and related advertising and marketing efforts, whichmay not result in the anticipated increase in revenues or market share;·the possibility of higher fees or revenue sharing arrangements with our distribution partners that distribute ourproducts or services or otherwise direct search queries to our website. We expect to continue to expand thenumber of our distribution relationships in order to increase our user base and to make it easier for our existingusers to access our services;·costs incurred in our international expansion efforts until we succeed in building the user base necessary tobegin generating sufficient revenues in these markets to earn accretive operating margins there; and·increased costs associated with the creation, support and maintenance of mobile products and services tomaintain and expand our offering and competitive market position, which may not result in anticipatedincreases in revenues or market share. We generate almost all of our revenues from advertising, which is cyclical and seasonal in nature, and any reduction inspending by or loss of advertisers would materially adversely affect our business, financial condition and results ofoperations.In the past three years, we generated on average more than 95% of our revenues from advertising. Expenditures byadvertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns, and can thereforefluctuate significantly. According to AKAR, the rate of growth in online advertising expenditures was 24% in the ninemonths of 2016 compared to the similar period of 2015, up from a growth rate of 15% in 2015 compared with 2014 and agrowth rate of 18% in 2014 compared with 2013. AKAR data for the full year of 2016 was not publicly available as of March17, 2017.Any decreases in online advertising spending due to economic conditions, or otherwise, could materially adverselyimpact our business, financial condition and results of operations. Additionally, volatility in international oil prices maycontinue to adversely affect the Russian economy. Any further potential deterioration in the economic conditions in Russiamay adversely affect total advertising spending in Russia, which, in turn, would materially adversely affect our operatingresults.Advertising spending and user traffic also tend to be seasonal, with internet usage, advertising expenditures andtraffic historically slowing down during the months, when there are extended Russian public holidays and vacations, andincreasing significantly in the fourth quarter of each year. For these reasons, comparing our results of operations on aperiod‑to‑period basis may not be meaningful, and past results should not be relied upon as an indication of futureperformance.We rely on third party partners for a material portion of our revenues and for expanding our user base via distributionarrangements. Any failure to obtain or maintain such relationships on reasonable terms could have an adverse effect onour business, financial condition and results of operations.Revenues from advertising on our ad network partner websites represented 27.1% of our online advertising revenuesin 2016 compared with 26.0% in 2015. This increase was driven by the addition of new advertising partners to our adnetwork as well as by improved targeting capabilities, which we introduced in the first half of 2016. We consider our adpartner network to be important for the continued growth of our business. Our agreements with our network partners, otherthan our agreement to power paid search results on Mail.ru, are generally terminable at any time without cause. Ourcompetitors could offer more favorable terms to our current or potential network partners, including guaranteed minimumrevenues or other more advantageous revenue‑sharing arrangements, in an effort to take market10 Table of Contentsshare 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 areas and may terminate their agreements with us in order to develop their own businesses. Ifour 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 fromthis affiliation, such as increased numbers of users, extended brand awareness and greater audience reach for our advertisers.If our agreements with any of these partners are terminated or not renewed and we do not replace those agreements withcomparable agreements, our business, financial condition and results of operations would be adversely affected.The number of paid clicks and amount of revenues that we derive from our partners in the Yandex ad networkdepends on, among other factors, the quality of their websites and their attractiveness to users and advertisers. Although wescreen new applicants, favor websites with high‑quality content and stable audiences, and strive to monitor the quality of thenetwork partner websites on an ongoing basis, these websites are operated by independent third parties that we do notcontrol. If our network partners’ websites deteriorate in quality or otherwise fail to provide interesting and relevant contentand services to their users, this may result in reduced attractiveness to their users and our advertisers, which may adverselyimpact 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 withleading software companies and device manufacturers for the distribution of our services and technology. In particular, wehave agreements, on a co‑marketing basis, with certain internet browsers. As new methods for accessing the internet becomeavailable, including through new digital platforms and devices, we may need to enter into new or amended distributionagreements. See also “—The competition to capture market share on mobile devices is intense, and if we are not successful inachieving substantial reach among users and monetizing search and other services on mobile devices, our business, financialcondition and results of operations could be adversely affected.”Our most significant distribution partner in 2016 was Opera, which offers mobile and desktop browsers, and whereYandex is the default search in certain search entry points. Each of our other distribution partners constitutes less than 10%of our total distribution traffic acquisition costs. If we are unable to continue our arrangements with Opera, or maintainexisting or enter into comparable arrangements with new distribution partners, particularly for the distribution of our searchand other services on mobile devices, this would likely have a negative effect on our search market share over time. In thefuture, existing and potential distribution partners may not offer or renew distribution arrangements on reasonable terms forus, or at all, which could limit our ability to maintain and expand our user base, and could have a material adverse effect onour business, financial condition and results of operations.As the Russian internet market matures, our future expansion will increasingly depend on our ability to generate revenuesfrom new businesses, new business models or in other markets. If we do not continue to innovate and provide services thatare useful and attractive to our users, we may be unable to retain them and may become less attractive to our advertisers,which could adversely affect our business, financial condition and results of operations.As internet usage has spread in Russia, the rate of growth in the number of internet users has been declining. Oursuccess depends on providing search and other services that make using the internet a more useful and enjoyable experiencefor our users. As search technology continues to develop, our competitors may be able to offer search capabilities that are, orthat are seen to be, substantially similar to, or better than, ours. As our core market matures, we will need to provide newservices, further exploit non‑core business models, such as our Taxi, E-commerce and Classifieds business units, or expandinto new geographic markets in order to continue to grow our revenues at previously achieved levels. The cost we incur inthese efforts, both in terms of product development expenses and advertising and marketing costs, can be significant.If we are unable to continue to develop and provide our users with quality, up‑to‑date services, and to appropriatelytime the services with market opportunities, or if we are unable to maintain the quality of such services, our user base may notgrow, or may decline. Further, if we are unable to attract and retain a substantial share of internet traffic generated by mobileand other digital devices, or if we are slow to develop services and technologies that are compatible with such devices, ouruser 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 adnetwork partners. This could adversely affect our business, financial condition and results of operations.11 Table of ContentsOur business depends on a strong brand and our ability to license, acquire or create compelling content at reasonablecosts. Failing to maintain and enhance our brand and offering compelling content would harm our ability to expand ourbase of users, advertisers and network partners and would materially adversely affect our business, financial condition andresults of operations.We believe that the brand identity that we have developed through the strength of our technology, our user focusand in particular, our ability to deliver compelling content, has significantly contributed to the success of our business. Welicense much of our content from third parties, such as music, news items, weather reports and TV program schedules. If weare unable to maintain and build relationships with third‑party content providers this would likely result in a weakening ofour brand and a loss of user traffic. In addition, we may be required to make substantial payments to third parties from whomwe license or acquire such content. An increase in the prices charged to us by third‑party content providers would adverselyaffect our business, financial condition and results of operations.We also believe that maintaining and enhancing the Yandex brand, including through continued significantmarketing efforts, is critical to expanding our base of users, advertisers, advertising network partners, and other businesspartners. Our Yandex.Money business operates through a joint venture with Sberbank. Recently, it has been reported thatSberbank is considering an e-commerce joint venture with AliExpress, which could potentially compete with E-commerce,and which may adversely affect our brand and business. Although we have sought to implement appropriate controls andprotections, as the minority partner in the Yandex.Money joint venture we may have limited ability to ensure that thebusiness is always operated in a manner that is consistent with the broader Yandex brand.Our carve‑out of certain of our services into newly created subsidiaries (business units), which we commenced in2015, may also require additional efforts in order to maintain consistent use of our brand. Maintaining and enhancing ourbrand, especially in relation to mobile services, will depend largely on our ability to continue to be a technology leader anda provider of high‑quality, reliable services, which we may not continue to do successfully.Many of our content licenses with third parties are non‑exclusive. Accordingly, other websites and other media suchas radio or television may be able to offer similar or identical content. This increases the importance of our ability toaggregate compelling content in order to differentiate Yandex from other businesses.Additionally, if we or our Yandex.Money joint venture partner fail to maintain and enhance the Yandex brand, or ifwe incur excessive expenses in our efforts to do so, our business, financial condition and results of operations would bematerially adversely affected. If other companies make available competitive content, the number of users of our servicesmay not grow as anticipated, or may decline.If we fail to manage effectively the growth of our operations, our business, financial condition and results of operationscould be adversely affected.We have experienced, and continue to experience, growth in our operations, which has placed, and will continue toplace, significant demands on our management and our operational and financial infrastructure. We carved out certain of ourservices into newly created subsidiaries, which we refer to as business units, in order to streamline the growth of thoseservices. Management of the business units requires additional administrative effort. 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 of operations.As our user and advertiser bases expand, we will need to continue to increase our investment in technology,infrastructure, facilities and other areas of operations, in particular product development, sales and marketing. As a result ofsuch growth, we will also need to continue to improve our operational and financial systems and managerial control andprocedures. We will have to maintain close coordination among our technical, accounting, finance, marketing and salespersonnel. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and wemay have to make significant additional expenditures, which could harm our business, financial condition and results ofoperations.12 Table of ContentsWe will need to make new arrangements for our Russian headquarters premises before our current lease expires in 2021,which may result in material expenses and distraction of management attention. Our Russian headquarters are currently located in approximately 55,000 square meters of rented property in centralMoscow, with a lease expiring in 2021. In February 2016, we announced that we entered into an agreement, pursuant towhich we were supposed to become the sole owner of a newly-created company which was to hold title to the office complexin Moscow that houses the Yandex Group’s Russian headquarters. In September 2016, we terminated this agreement. As aconsequence, once our lease expires, we will need to make alternative arrangements for our Russian headquarters, which mayinclude negotiating a new lease for our current premises, moving to new leased premises, or purchasing or developing ourown premises. If we seek to negotiate a new lease for our current or new premises, we may be unable to secure favorable terms,and may be required to agree to rent denominated in, or linked to, U.S. dollars, which would subject us to foreign exchangerisk. If we decide to purchase or develop our own premises, we may incur substantial up-front expenses and may encounterchallenges in managing or coordinating a development process outside our area of core competence.Our corporate culture has contributed to our success, and if we cannot maintain the focus on teamwork and innovationfostered by this environment, our business, 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 fostersteamwork and innovation. As our business matures, and we are required to implement more complex organizationalmanagement structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. Wecommenced the carve‑out of certain of our services (Taxi and Classifieds in 2015 and E-commerce in 2016) into newlycreated subsidiaries (business units) spun off from our main operating subsidiary, in order in part to maintain the “start-upspirit” and provide greater strategic and operational focus for these units. Our efforts in maintaining our corporate culturemay not be successful, which would adversely affect our business, financial condition and results of operations. In particular,the spin‑off of certain business units may cause the loss of some of our clients, or disruption in the provision of the servicesthat are being carved out, and may require additional attention from our management.The loss of any of our key personnel or a failure to attract, retain and motivate qualified personnel, may have a materialadverse 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 andtechnical personnel, as well as our continued ability to attract, retain and motivate other highly qualified engineering,programming, technical, sales, customer support, financial and managerial personnel.Although we attempt to structure employee compensation packages in a manner consistent with the evolvingstandards of the markets in which we operate and to provide incentives to remain with Yandex, including equity awardsunder our employee incentive plan, we cannot guarantee that we will be able to retain our key employees. Although we grantadditional equity awards to management personnel and other key employees from time to time, employees may be morelikely to leave us after their initial award fully vests. Depreciation of the market value of our shares could also make suchequity awards less effective in retaining our key employees, especially for options issued above the current trading price. Ifany member of our senior management team or other key personnel should leave our group, our ability to successfullyoperate our business and execute our business strategy could be impaired. We may also have to incur significant costs inidentifying, hiring, training and retaining replacements for departing employees.The competition for software engineers and qualified personnel who are familiar with the internet industry in Russiais intense. We may encounter difficulty in hiring and/or retaining highly talented software engineers to develop and maintainour services. There is also significant competition for personnel who are knowledgeable about the accounting and legalrequirements related to a NASDAQ listing, and we may encounter particular difficulty in hiring and/or retaining appropriatefinancial 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 adverseeffect on our business, financial condition and results of operations.13 Table of ContentsGrowth in our operations internationally may create increased risks that could adversely affect our business, financialcondition and results of operations.We have limited experience with operations outside Russia, and in 2016 derived only approximately 8.3% of ourrevenues from customers outside Russia. Part of our future growth strategy is to expand our operations geographically on anopportunistic basis. Our geographic expansion efforts generally require the expenditure of significant costs in the newgeography prior to achieving the market share necessary to support the commercialization of our services, which allows us tobegin generating revenues in the new geography. For example, in 2011 we launched operations in Turkey. Our ability tomanage our business and conduct our operations across a broader range of geographies will require considerablemanagement attention and resources and is subject to a number of risks relating to international markets, including thefollowing:·challenges caused by distance, language and cultural differences;·managing our relationships with local partners should we choose to adopt a joint venture approach in ourinternational 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 regardingliability for online services and content;·adoption of new legislation and regulations, which may adversely impact our operations or may be applied inan unpredictable manner;·potentially adverse tax consequences;·deleterious changes in political environment;·unexpected changes in preferences and perceptions of our users and customers; 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 thatapply to our international operations may increase our cost of doing business and may interfere with our ability to offer, orprevent us from offering, our services in one or more countries. These numerous laws and regulations include import andexport requirements, content requirements, trade restrictions, tax laws, economic sanctions, internal and disclosure controlrules, data protection, data retention, privacy and filtering requirements, labor relations laws, U.S. laws, such as the ForeignCorrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Violations of these laws andregulations may result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct ofour business; and damage to our reputation. Although we have implemented policies and procedures designed to ensurecompliance with these laws, we cannot assure you that our employees, contractors or agents will not violate our policies. Anysuch violations may result in prohibitions on our ability to offer our services in one or more countries, and may alsomaterially 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.14 Table of ContentsAny decline in the internet as a significant advertising platform in the countries in which we operate could have a materialadverse 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 asa marketing channel in Russia is maturing, the level of overall spending on advertising in Russia remains relatively lowcompared to that in other developed countries. Broadband penetration rates in Russia are also relatively low compared tothose in some other developed countries. The internet competes with traditional advertising media, such as television, print,radio and outdoor advertising. Although advertisers have become more familiar with online advertising in recent years, someof our current and potential customers have limited experience with online advertising, and have not historically devoted asignificant portion of their marketing budgets to online marketing and promotion. As a result, they may be less inclined toconsider the internet effective in promoting their products and services compared with traditional media.Any decline in the appeal of the internet generally in Russia or the other countries in which we operate, whether as aresult of increasing governmental regulation of the internet, the growth in popularity of other forms of media, a decline in theattractiveness of the internet as an advertising medium or any other factor, could have a material adverse effect on ourbusiness, financial condition and results of operations.If our security measures are breached, malicious applications interfere with or exploit security flaws in our services, or ourservices are subject to attacks that degrade or deny the ability of users to access our products and services, our productsand services may be perceived as not being secure, users and customers may curtail or stop using our products and services,and we may incur significant legal and financial exposure.Third parties have in the past attempted, and may in the future attempt, to use malicious applications to interferewith our users’ internet experience, including hijacking queries to our search engine, altering or replacing Yandex searchresults, or otherwise disrupting our ability to connect with our users. Such interference often occurs without disclosure to orconsent from users, resulting in a negative experience that users may associate with Yandex. Such an attack could also leadto the destruction or theft of information, potentially including confidential or proprietary information relating to Yandex’sintellectual property, content and users. For example, if a third party were to hack into our network, they could obtain accessto our search code. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotagesystems change frequently and often are not recognized until launched against a target, we may be unable to anticipate thesetechniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs, the marketperception of the effectiveness of our security measures could be harmed and we could lose users and customers.Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, orotherwise. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclosesensitive information in order to gain access to our data or our users’ or customers’ data. Such security breaches may exposeus to a risk of loss of this information, litigation, remediation costs, increased costs for security measures, loss of revenue,damage to our reputation, and potential liability.In addition, we offer applications and services that our users download to their devices or that they rely on to storeinformation and transmit information to others over the internet. These services are subject to attack by viruses, worms andother malicious software programs, which could jeopardize the security of information stored in a user’s device or in ourcomputer systems and networks. These applications may be difficult to remove or disable, may reinstall themselves and maycircumvent other applications’ efforts to block or remove them. 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 coulddecline, and our communications with certain users could be impaired, which could adversely affect our business, financialcondition and results of operations.As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile apps orstored in proprietary document formats, which may limit the effectiveness of our search technology, which could adverselyaffect our brand, business, financial condition and results of operations.Social networks are important players in the internet market, and have a significant degree of control over themanner and extent to which information on their websites can be accessed through third‑party search engines.15 Table of ContentsIn addition, a large amount of information on the internet is provided in proprietary document formats such asMicrosoft Word and Adobe Acrobat. The providers of the software applications used to create these documents couldengineer the document format to prevent or interfere with our ability to access the document contents with our searchtechnology. Information can also be stored in other closed systems, such as mobile apps.If social or other networks or software providers take steps to prevent their content or documents in their formatsfrom being searchable, such content would not be included in our search results even if the content was directly relevant to asearch request. These parties may also seek to require us to pay them royalties in exchange for giving us the ability to searchcontent on their sites, in their networks 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 searchtheir content or documents in their proprietary 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 affectour competitive position, our business, 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 property rights. Our patent department is responsible for developing and implementing ourgroup‑wide patent protection strategy in selected jurisdictions, and to date we have filed more than 500 patent applications,of which more than 100 have resulted in issued patents to date. The protection and enforcement of intellectual propertyrights in Russia and other markets in which we operate, however, may not be as effective as that in the United States orWestern Europe. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Anysignificant infringement of our intellectual property rights could harm our business, our brand and/or our ability to compete,all of which could 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 significantdamage awards, and could limit our ability 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 patentscovering search, indexing, electronic commerce and other internet‑related technologies, as well as a variety of onlinebusiness models and methods. We believe that these parties will continue to take steps to protect these technologies,including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding the ownershipof technologies and rights associated with online activities are likely to arise in the future. In addition, use of open‑sourcesoftware is often subject to 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 stopusing technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, whichmay not be available on commercially reasonable terms or at all, and may significantly increase our operating expenses. Wemay be required to develop an alternative non‑infringing technology, which may require significant effort, expense and timeto 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 indefending against third‑party infringement claims regardless of the merit of such claims.We may be held liable for information or content displayed on, retrieved by or linked to our websites and mobileapplications, or distributed by our users; or we may be required to block certain content or access to our websites could berestricted; any of 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 theirusers is currently not settled in Russia and certain other countries in which we operate. Claims may be brought against us fordefamation, libel, negligence, copyright, patent or trademark infringement, tort (including personal injury), fraud, otherunlawful activity or other theories and claims based on the nature and content of information to which we link or that may beposted online via blogs and message boards, generated by our users or delivered or shared through our services, including ifappropriate licenses and/or rights holder’s consents have not been obtained. For example, we have previously been involvedin litigation regarding alleged copyright infringement in the United States. We are also regularly required to remove contentuploaded by users on grounds of alleged copyright infringement, and from time to time we receive requests from individualswho do not want their names or websites to appear in our search results. Third16 Table of Contentsparties may also seek to assert claims against us alleging unfair competition, data misappropriation, violations of privacyrights or failure to maintain the confidentiality of user data. Our defense of any such actions could be costly and involvesignificant time and attention of our management and other resources. If any of these complaints results in liability to us, thejudgment or settlement could potentially be costly, encourage similar lawsuits, and harm our reputation and possibly ourbusiness.The governments of the countries in which we operate are increasingly developing legislation aimed at regulationof the internet, in many places expanding liability and creating new obligations for companies which operate in the internet.For example, in 2017 new draft legislation was introduced which, if adopted, could require us to delist search results linkingto websites that have been blocked in Russia for repeated copyright infringements. New legislation and regulations mayimpose additional new requirements on us and our operations and lead to material legal liability, which can be difficult toforesee or limit.Additional recent legislation in Russia has introduced a system of information and website blocking measures bothto prevent and stop copyright and related rights infringements and to prevent dissemination of illegal information, such aschild pornography, content encouraging suicides and drug use, information on minors hurt by illegal actions and extremistinformation. The regulations generally require a request from the governmental authority to take down the allegedlyinfringing or illegal information prior to blocking of a particular website. However, in some cases, such as dissemination ofextremist information, access to such information can be blocked without notification or prior judicial scrutiny. Thecategories of illegal information to which access can be restricted may be interpreted broadly or be expanded. In certaincases, even removal of illegal information does not eliminate the risk of website blocking or reinstate access to the blockedwebsite. For example, Russian legislation allows for permanent blocking of websites for repeated violation of copyright andrelated rights. There is little clarity as to how this measure will be applied in practice. We may be subject to unpredictableblocking measures, injunctions or court decisions that may require us to block or remove content and may adversely affectour services and operations. In addition, to ensure compliance with such laws we may be required to commit greaterresources, or to limit functionality of our services, which may adversely affect the appeal of our services to our customers.We rely on the continued availability, development and maintenance of the internet infrastructure in the countries in whichwe operate, including third‑party providers for our principal internet connections and the equipment critical to ourinternet properties and services. Any errors, failures or disruption in the products and services provided by these thirdparties may materially adversely affect our brand, business, financial condition and results of operations.Our future success will depend on the continued availability, development and maintenance of the internetinfrastructure globally and particularly in the countries in which we operate. This includes maintenance of a reliable networkbackbone with the necessary speed, data capacity and security for providing reliable internet services. Any disruption in thenetwork access provided by third parties or any failure by them to handle current or higher future volumes of use maysignificantly harm our business. We have experienced and expect to continue to experience interruptions and delays inservice from time to time. Furthermore, we depend on hardware and software suppliers for prompt delivery, installation andservice of servers and other equipment to deliver our services. The internet infrastructure may also be unable to support thedemands placed on it by growing numbers of users and time spent online or increased bandwidth requirements. Governmentregulation may also limit our access to adequate and reliable internet infrastructure. Any outages or delays resulting frominadequate internet infrastructure or due to problems with our third-party providers could reduce the level of internet usageas well as our ability to provide our services to users, advertisers and network partners, which could materially adverselyaffect our business, financial condition and results of operations.We may have difficulty scaling and adapting our existing technology architecture to accommodate increased traffic andtechnology advances or new requirements of our users and advertisers, which could adversely affect our business, financialcondition and results of operations.With some of the most highly visited websites in Russia, we deliver a growing number of services and page views toan increasing number of users. In addition, the services we offer have expanded and changed significantly and are expectedto continue to do so in the future to accommodate bandwidth‑intensive technologies and means of content delivery, such asinteractive multimedia and video. Our future success will depend on our ability to adapt to rapidly changing technologies, toadjust our services to evolving industry standards and to maintain the performance and17 Table of Contentsreliability of our services. Rapid increases in the levels or types of use of our online services could result in delays orinterruptions in our services.As we expand our services, we will need to continue to invest in new technology infrastructure, including datacenters. We may have difficulty in expanding our infrastructure to meet any rising demand for our services, includingdifficulties in obtaining suitable facilities or access to sufficient electricity supplies. A failure to expand our infrastructurecould materially and adversely affect our ability to maintain and increase our revenues and profitability and could adverselyaffect our business, financial condition and results of operations.Certain technologies could block our ads, which may adversely affect our business, financial condition and results ofoperations.Advertising displayed on our platforms may be interfered with by third parties, which may adversely affect ourability to attract advertisers. For example, third parties have in the past, and may in the future, employ technologies to blockthe display of ads on webpages. Ad‑blocking technology, if used widely and effectively, would reduce the amount ofrevenue generated by the ads we serve and decrease the confidence of our advertisers and Yandex ad network partners in ouradvertising 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 our business, financial condition and results of operations.We are also exposed to the risk of fraudulent and invalid clicks on the ads we serve from a variety of potentialsources. Invalid clicks are clicks that we have determined are not intended by the user to access the underlying content,including clicks resulting from click fraud executed by automated scripts of computer programs. We monitor our ownwebsites and those of our partners for click fraud and proactively seek to prevent click fraud and filter out fraudulent or otherinvalid clicks. To the extent that we are unsuccessful in doing so, we credit our advertisers for clicks that are later attributedto click fraud. If we are unable to stop these invalid clicks, these credits to our advertisers may increase. This couldnegatively affect our profitability, and these invalid clicks could result in legal claims or harm our brand.Our business depends on the accuracy and reliability of our search results and dependability of our other services. Asystems failure, technical interference or human error could prevent us from providing accurate search results or ads orreliably deliver our other services, which could lead to a loss of users and advertisers and damage our reputation andmaterially adversely affect our business, financial condition and results of operations.Our business depends on our ability to provide accurate and reliable search results which may be disrupted. Forexample, because our search technology ranks a webpage’s relevance based in part on the importance of the websites thatlink to it, people have attempted to link groups of websites together to manipulate search results. If our efforts to combatthese and other types of “index spamming” are unsuccessful, our reputation for delivering relevant results could be harmed.This could result in a decline in user traffic, which may adversely affect our business, financial condition and results ofoperations.Although we maintain robust network security measures, our systems are potentially vulnerable to damage orinterruption from terrorist attacks, denial‑of‑service attacks, computer viruses or other cyber‑attacks or attempts to harm oursystem, 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, sabotage and intentional acts ofvandalism, and to potential disruptions. The occurrence of a natural disaster or other unanticipated problems at our datacenters could result in lengthy interruptions in our service, which could reduce our revenues and profits, and our brand couldbe damaged if people believe our services are unreliable.From time to time, we have experienced power outages that have interrupted access to our services and impacted thefunctioning of our internal systems. Although we maintain back‑up generators, these may not operate properly through amajor sustained power outage or their fuel supply could be inadequate. Any unscheduled interruption in our services places aburden on our entire organization and would result in an immediate loss of revenue. If we experience frequent or persistentsystem 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 reducethe frequency or duration of unscheduled downtime.18 Table of ContentsAlthough we test updates before implementation and there were no significant downtime periods in recent years,errors made by our employees in maintaining or expanding our systems may damage our brand and may have a materiallyadverse effect on our business, financial condition and results of operations.We may seek to acquire complementary businesses, teams and technologies in the future, and may fail to identify suitabletargets, acquire them on acceptable terms or successfully integrate them, which may limit our ability to implement ourgrowth strategy. Acquisition of new businesses may also lead to increased legal risks and other negative consequenceswhich could have an adverse effect on our business, financial condition and results of operations.We regularly acquire other businesses, technologies and teams. The acquisition and integration of new businesses,technologies and people 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 newbusinesses; and·legal risks (including potential claims of the counterparty or of third parties), which may result from our lack ofexpertise in the field of the target’s business, incomplete or improper due diligence, misrepresentations bycounterparties, and/or other causes.The integration of new businesses presents a number of challenges, including differing cultures or managementstyles, poor financial records or internal controls on the part of the acquired companies, and an inability to establish controlover cash flows. Furthermore, even if we are successful in integrating new businesses, expected cost and operatingefficiencies may not materialize, the financial benefits from the acquisition may be less than anticipated, and we could berequired 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 competingbidders. As a NASDAQ‑listed company, we are subject to securities laws and regulations that, in certain circumstances,require that we file with the SEC audited historical financial statements for businesses we acquire that exceed certainmateriality thresholds. Given financial reporting practices in Russia and other countries in which we operate, such financialstatements and documented systems of internal controls over financial reporting are often not readily available or notcapable of being audited to the standards required by U.S. securities regulations. As a result, we may be prevented from ordelayed in pursuing acquisition opportunities that our competitors and other financial and strategic investors are able topursue, which may limit our ability to implement our growth strategy.Our Yandex.Money joint venture may be used for fraudulent, illegal or improper purposes, which could materiallyadversely affect our brand, reputation, business, financial condition and results of operations.Our joint venture, Yandex.Money’s, electronic payments system is susceptible to fraud and to potentially illegal orimproper uses, and we 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;19 Table of Contents·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 venturetransaction with Sberbank is more limited than was the case while we were the sole owner of this business. If Yandex.Moneyis unable to prevent, detect or otherwise adequately address fraud or other improper uses of its services, users may loseconfidence 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 criminalproceedings against a user who conducts illegal activities using its services, could result in damage to our brand orreputation. If we are unable to manage these risks, our brand, reputation, business, financial condition and results ofoperations could be materially adversely affected.Failure to maintain effective customer service may result in customer complaints and negative publicity and may adverselyaffect our business, financial condition and results of operations.Customer complaints or negative publicity about our services or those offered by us (including services offered byour business units) or our Yandex.Money joint venture with Sberbank, or breaches of customers’ privacy or of our securitymeasures, could diminish consumer confidence in and use of our services. Measures we implement to combat risks of fraudand breaches of privacy and security may be viewed as onerous by our customers or those of our joint venture and damagerelations with them. Alternately, should breaches of customers’ privacy or of security measures occur, we could be subject toinvestigations and claims from governmental bodies, as well as from our customers. These measures heighten the need forprompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significantpersonnel expense, and such expense, if not managed properly, may impact our profitability or that of our Yandex.Moneyjoint venture. Any inability by us or our Yandex.Money joint venture to manage or train our or their customer servicerepresentatives properly could compromise our or their ability to handle customer complaints effectively. If we orYandex.Money fail to maintain effective customer service, our reputation may suffer and we may lose our customers’confidence, which may adversely affect 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 toassess our markets and our market position. We rely on and refer to information and statistics from various third‑party sources, as well as our own internalestimates, regarding internet usage and penetration and the online advertising markets in the countries in which we operate.The information and statistics used in our industry are subject to inherent limitations reflecting the differing metrics andmeasurement methods utilized and applied by different sources; for example, data derived from computer usage contrasted tothat 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 generallyless consistent and reliable due to 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 andpatent‑related matters, which are costly to defend and which could adversely affect our business, financial condition andresults of operation.The software, databases, algorithms, images, patentable intellectual property, trade secrets and know‑how that weuse for the operation of our services were generally developed, invented or created by our former or current employees orcontractors during the course of their employment with us within the scope of their job functions or under the relevantcontractor’s agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright and relatedrights as well as rights to file patent applications with respect to such products, and have the intellectual property rightsrequired for their further use and disposal subject to compliance with certain requirements set out in the Civil Code of Russia.We believe that we have appropriately followed such requirements, but they are defined20 Table of Contentsin 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 overthe products developed by them or with their contribution or claim the right to additional compensation for their works forhire and/or patentable results, in addition to their employment compensation. We may not prevail in any such action and anysuccessful claim, although unlikely to be material, could adversely affect our business and results of operation.Risks Related to Doing Business and Investing in Russia and Other Countries in which We OperateThe legal system in Russia and other countries in which we operate can create an uncertain environment for investmentand business activity that could have a material adverse effect on the value of our Class A shares, our business, financialcondition and results of operations.The legal framework supporting a market economy remains new and in flux in Russia and the other countries inwhich we operate and, as a result, the relevant 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 regulationsand a subordinate legal framework;·selective and inconsistent enforcement of laws or regulations, sometimes in ways that have been perceived asbeing motivated by political or financial considerations;·limited or contradictory judicial and administrative guidance on interpreting legislation;·relatively limited experience of judges and courts in interpreting recent and evolving commercial legislation aswell as in understanding specifics of business operations and international best practices in the sphere ofinformation 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.Any of these factors may result in our being subject to unpredictable fines or requirements, affect our ability toenforce our rights under our contracts or to defend ourselves against claims by others, or result in our being subject tounpredictable 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 inRussia have on occasion been subject to actions by public authorities that some have characterized as unpredictable orpolitically motivated.”Because the range of the services we provide is increasing and the legal framework governing internet services ande‑commerce in our markets is evolving, we may be required to obtain additional licenses, permits or registrations orcomply with other requirements, which may be costly or may limit our flexibility to run our business.As we increase the range of services and diversify our business we may have to apply for additional licenses.Maintenance of granted licenses and obtaining new licenses may require us to spend additional resources. Licensingrequirements may also limit our flexibility in running our business. Failure to maintain required licenses may significantlylimit our ability to provide new services in respect of which these licenses are required.21 Table of ContentsCourt interpretations and the applicability of Russian legislation and regulations in relation to our business can beambiguous or contradictory and it is possible that the authorities may determine that we are also required to have additionallicenses, permits or registrations to provide our services. For example, we could fall within the regulations that require receiptof licenses/permits or compliance with certain mandatory procedures with respect to the provision of telecommunicationsservices, the delivery of “mass media”, blogging and the use of encryption technologies by businesses. Such licensing orcompliance processes may be time consuming and expensive and we may not be successful in acquiring any newly requiredlicenses.Additionally, if we fail to obtain and maintain required licenses, permits or registrations or comply with certainmandatory procedures, we may face fines, penalties or sanctions.As the legal framework in Russia continues to evolve, we may be required to take additional actions in order tocomply with new legislation. In January 2017, for example, a new law came into force that regulates the provision of onlinenews aggregation services in Russia. In accordance with this law, websites that are used to process and disseminate newsinformation and that are accessed by more than one million users per day must be registered. In addition, providers of newsaggregation services are responsible for ensuring the legality and accuracy of the information that can be accessed by theirusers, unless the news information is reproduced verbatim from news published by registered mass media. The law alsolimited the ownership of news aggregation services to Russian entities and citizens. Implementation of this law maysignificantly affect our Yandex.News service and other services which could be used to process and disseminate newsinformation. Although we believe that we currently comply with this law, the regulator may take a different view.Compliance with this law may also require us to spend additional resources and limit our flexibility in providing ourservices.Recent amendments to Russian legislation regulating the use of cash registers changed the rules about processingpayments received for sale of goods or provision of services. Businesses will have to store fiscal data electronically and sendit to tax authorities over the internet. It is also expected that businesses will have to provide receipts to their customers,including in relation to online provision of services. Since the new rules are drafted in general terms, it is uncertain to whatextent they apply to our operations. We may have to change our payment processing procedures and spend additionalresources in order to ensure compliance with these new regulations.Additionally, draft laws have been proposed to regulate the provision of online audiovisual services and taxiservices and which could result in the regulation of internet services that offer audiovisual content or act as intermediariesbetween taxi service providers and passengers and which allows passengers to hail taxis, such as our services, Yandex.Videoand Yandex.Taxi. In March 2017 the Russian Government approved for introduction into the Parliament another draftlegislation which is aimed at regulation of services that aggregate information about goods and services offerings. Enactmentof these draft laws could result in the imposition of additional obligations and liability on the providers of such intermediaryservices and could require us to modify certain of our services, including Yandex.Video, Yandex.Taxi, Yandex.Market andother services which aggregate information about goods and services offerings, and spend additional resources in order toensure compliance with new regulations. If we fail to comply with applicable legal requirements, we may face fines, penaltiesor sanctions.Applicable legislation imposes restrictions and requirements on us with respect to processing of certain types of personaland other data and data retention which may impose additional obligations on us, limit our flexibility, or harm ourreputation with users.Collection and handling of user data by any entity or person in Russia and other countries may be subject to certainrequirements and restrictions. If these requirements and restrictions are amended, interpreted or applied in a manner notconsistent with current practice, we could face fines or orders requiring that we change our operating practices, which in turncould have a material adverse effect on our business, financial condition and results of operations.In Russia, in order to store an individual’s personal data, we must obtain his or her written consent and useencryption and other technical means to protect his or her personal data. We do not collect or perform any operations on ourusers’ personal data, except when such collection or processing is in accordance with our terms of services and privacypolicies which are available on our websites.22 Table of ContentsSubject to several exemptions, processors of personal data must notify the appropriate Russian authority. We do notbelieve that we are required to make this notification. However, due to the absence of established court practice and officialguidelines on the application of the exemptions to notification, we cannot assure you that the regulator may not take a viewthat we nevertheless have to file a notification or comply with other requirements applicable to processors of personal data. Ifwe are ultimately required to file such a notification or otherwise are determined to be subject to the rules regarding thecollection and handling of personal data, we may be required to use special technical facilities and equipment and to adoptextensive internal compliance rules for the protection of personal data, which may adversely affect our ability to flexiblymanage our business or make it more costly to do so.Furthermore, we use cookies and other widespread technologies that assist us in improving the user experience andpersonalization of our products and services that ultimately benefit both our users and advertisers through behavioraltargeting, which makes our advertising more relevant. There is no clarity as to whether our practices are compliant with therequirements of applicable data protection legislation in Russia and abroad, and such laws could be interpreted and appliedin a manner that is not consistent with our current data protection practices.Additionally, in Russia, “organizers of information distribution” are required to notify the relevant Russianauthority about the commencement of their operations, and must retain a broad range of data relating to and generated bytheir users for a period of time, which must be provided to the authorities at their request. Our principal subsidiary operatingin Russia has notified the relevant Russian authority that it acts as an organizer of information distribution with respect tosome of the services it provides. Organizers of information distribution that use encryption when delivering or processingelectronic messages have to provide the security authorities with information necessary for decoding the delivered orprocessed messages. Compliance with these requirements may require significant expenditures by us, including additionaldata centers, servers and other infrastructure or software development. Data retention may also harm our reputation with users.If we fail to comply with the above requirements, the Russian authorities can block access to our services in Russia.Under Russian law, companies are also required to store all personal data of Russian users in databases locatedinside Russia. Since this legislation is drafted broadly, it is uncertain whether or to what extent it applies to our operations.Compliance with the requirements provided in this legislation may be practically difficult, require significant efforts andresources, could lead to legal liability in other jurisdictions and limit functionality of our services. Compliance with theserequirements may also limit our ability to compete with other companies located in other jurisdictions that do not requiremandatory local storage of personal data relating to their users. However, any non‑compliance with this requirement couldlead to legal liability and potentially to restriction of the availability of the service in Russia. For example, in 2016 a Russiancourt ordered the blocking of access to a popular social networking website for violation of data protection legislation.Due to the nature of the services we offer and the fact that we have a presence in a number of countries, we may alsobe subject to data protection laws of other jurisdictions, especially laws regulating the cross‑border transfer of personal data,which may require significant compliance efforts and could result in liability for violations in other jurisdictions. As ourbusiness grows we may also encounter increased pressure from foreign state authorities with respect to production ofinformation related to users in circumvention of the international legal framework regulating the provision of suchinformation. Any non‑compliance with such requests may lead to liability and other adverse consequences.Further, current law imposes restrictions on the distribution of satellite images of certain areas in Russia and theother countries in which we operate and imposes requirements with respect to the information provided by the trafficmonitoring service we offer. If we were found to be in violation of any such restrictions, we may be forced to suspend suchservices or may potentially be subject to fines or other penalties.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 of advertisers and therefore a reduction in our revenues.Russian law prohibits the sale and advertising of certain products and heavily regulates advertising with respect tocertain products and services. Ads for certain products and services, such as financial services, as well as ads aimed at minorsand some others, must comply with specific rules and must in certain cases contain required disclaimers.23 Table of ContentsFurther amendments to legislation regulating advertising may impact our ability to provide some of our services orlimit the type of advertising we may offer. The application of these laws to parties, such as Yandex, that merely serve ordistribute ads and do not market or sell the product or service, however, can be unclear. Pursuant to our terms of service, werequire that our advertisers have all required licenses or authorizations. If our advertisers do not comply with theserequirements, and these laws were to be interpreted to apply to us, or if our ad‑serving system failed to include necessarydisclaimers, we may be exposed to administrative fines or other sanctions, and may have to limit the types of advertisers weserve.The regulatory framework in Russia governing the use of behavioral targeting in online advertising is unclear. Ifnew legislation were to be adopted, or current legislation were to be interpreted, to restrict the use of behavioral targeting inonline advertising, our ability to enhance the targeting of our advertising could be significantly limited, which could resultin a loss of advertisers or a reduction in the relevance of the ads we serve, which would reduce the number of clicks on the adsand therefore our revenues.Our need to comply with applicable Russian laws and regulations could hamper our ability to offer services that competeeffectively with those of our foreign competitors and may adversely affect our business, financial condition and results ofoperations.Many of our global competitors, such as Google, Microsoft and Yahoo!, have their principal operations outside ofRussia, putting them generally outside of the jurisdiction of Russian courts and government agencies, even though some ofthem have offices in Russia. Our systems and operations are located principally in Russia. Russian laws and regulations thatare applicable to us, but not to our foreign competitors, may impede our ability to develop and offer services that competeeffectively on a global scale as well as in Russia with those offered by our foreign‑based competitors and generally availableworldwide over the internet. Any inability on our part to offer services that are competitive with those offered by our foreigncompetitors may adversely affect our business, financial condition and results of operations.Russian authorities could determine that we hold a dominant position in one or more of our markets, and could imposelimitations on our operational flexibility that may adversely affect our business, financial condition and results ofoperations.Russian anti‑monopoly legislation imposes restrictions on companies that occupy a dominant position in a givenmarket. We believe that the authorities have not to date focused on internet advertising in Russia to any significant extent,although we are aware of public statements by government officials suggesting that the authorities may analyze the businessof online social networking. Were the Russian authorities to investigate the internet or online advertising industries, it ispossible that they may conclude that, given our market share, we hold a dominant position in one or more of the markets inwhich we operate. Additionally, from time to time we receive information requests from Russian Federal AntimonopolyService (FAS) related to certain of our services. If FAS deems that we hold a dominant position in one or more of the marketsin which we operate this could result in limitations on our future acquisitions and a requirement that we pre‑approve with theauthorities any changes to our standard agreements with advertisers and Yandex ad network partners, as well as any speciallynegotiated agreements with business partners. In addition, if we were to decline to conclude a contract with a third party orterminate an existing agreement without sufficient substantiation this could, in certain circumstances, be regarded as abuse ofa dominant market position.Any abuse of a dominant market position could lead to administrative penalties and the imposition of fines of up to15% of our prior year annual revenues in the relevant market. These limitations may reduce our operational and commercialflexibility and responsiveness, which may adversely affect our business, financial condition and results of operations.See “—The competition to capture market share on mobile devices is intense, and if we are not successful inachieving substantial reach among users and monetizing search and other services on mobile devices, our business, financialcondition and results of operations could be adversely affected.”24 Table of ContentsBusinesses in Russia have on occasion been subject to actions by public authorities that some have characterized asunpredictable or politically motivated.Many commercial laws and regulations in Russia are relatively new and have been subject to limited interpretation.As a result, their application can be unpredictable. In addition, government authorities have a tendency to follow a veryformal approach in certain cases, are entrusted with a high degree of discretion and have at times exercised their discretion inways that may be perceived as selective or unpredictable, and sometimes in a manner that is seen as being influenced bypolitical or commercial considerations. Such actions have included the termination or invalidation of contracts, withdrawalof licenses, sudden and unexpected tax audits, criminal prosecutions, administrative investigations and civil actions as wellas actions for technical violations of law or violations of laws that have been applied retroactively, such as violations of taxlaws, or interpretations of widely used practices in specific cases as impermissible. Federal and local government entitieshave also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to voidtransactions, apparently for political purposes. We cannot assure you that regulators, judicial authorities or third parties willnot challenge our compliance with applicable laws, decrees and regulations.High‑profile businesses in Russia, such as ours, can be particularly vulnerable to politically motivated actions.Some Russian television broadcasters, for example, have experienced what some would characterize as politically motivatedactions, including efforts to facilitate change of control. Although we believe that our commitment to content neutralityprinciples lessens the risk of politically motivated actions against us, we cannot guarantee that we will not be affected bypolitically motivated actions that could materially adversely affect our operations. Moreover, although our Yandex.Newsservice aggregates content by automatic algorithm, without regard to viewpoint, other parties may perceive our Yandex.Newsservice as reflecting a political viewpoint or agenda, which could subject us to politically motivated actions.The Russian parliament may adopt and government officials may apply unpredictable, contradictory or ambiguouslaws or regulations in ways that have a material adverse effect on our business, financial condition and results of operations.Existing restrictions on foreign ownership may prevent a takeover of our company by a non‑Russian party. If the Russiangovernment were to apply existing limitations on foreign ownership to our business, or specifically impose limitations onforeign ownership of internet businesses in Russia, it could materially adversely affect our group and the value of ourClass A shares.Russian law restricts foreign ownership of companies involved in certain strategically important activities in Russia.The relevant activities include activities connected with the use of encryption technologies that are subject to licensing.Currently, the internet and online advertising are not industries specifically covered by this legislation, but in the past therehave been amendments under consideration by the Russian State Duma, which, if adopted, would include certain largeinternet companies within the scope of this law.We believe that our Yandex.Money joint venture is subject to the above restrictions on foreign ownership becausethe Yandex.Money business currently holds an encryption license covered by the law. Since the completion of our jointventure in respect of Yandex.Money in July 2013 following the sale by Yandex to Sberbank of 75% (less one ruble) of thetotal participation interest in Yandex.Money, we believe that the applicable restrictions in respect of private non‑Russianpersons no longer apply to Yandex, but that the requirement to obtain prior approval from the Russian Governmentcontinues to be applicable to non‑Russian state or international organizations or entities controlled by a non‑Russian state orinternational organization that would seek to acquire shares of Yandex or enter into an agreement that would establish director indirect control over Yandex and, therefore, trigger application of the law restricting foreign ownership. There is also a riskthat some of the rights granted to Yandex N.V. under the joint venture agreement with Sberbank could be interpreted byRussian authorities as establishing control by Yandex over the Yandex.Money business, which would require the RussianGovernment’s preliminary consent for a broader number of transactions, including by private non‑Russian persons.Moreover, because Yandex holds 25% (plus one ruble) in Yandex.Money, there is a risk that a change of control in respect ofYandex would require preliminary consent of the Central Bank of Russia, as Yandex could be considered to indirectly holdmore than 10% of the voting power of a non‑banking credit organization.25 Table of ContentsIn 2016, legislation became effective in Russia that reduced the permitted level of foreign ownership in companiesthat hold Russian mass media registrations. The law limits the ownership or control, direct or indirect, of Russian mass mediaentities by non‑Russian entities and individuals to no more than 20%. Yandex’s principal businesses in Russia are notcurrently required to register as mass media, and therefore this new law is not applicable to our business. Were a new law witha similar regulation to be adopted that imposed a limitation on foreign ownership of internet businesses such as ours, or werethe mass media law to be amended to require that our businesses register as mass media or implement a separate registrationfor online services, this could require a significant change in our operating or ownership structure, which could materiallyadversely affect our operations and/or the value of our Class A shares.In order to comply with the new limitations on foreign ownership of mass media in Russia, our Yandex.Trafficservice uses the services of an information agency that is not owned by Yandex when providing information services to itscustomers. However, there is no guarantee that the operation of our Yandex.Traffic service will be deemed compliant with thelimitations on foreign ownership of mass media or that foreign ownership or sponsorship restrictions applicable to massmedia will not adversely affect our Yandex.Traffic service.In January, 2017 a new law came into force that regulates the provision of online news aggregation services inRussia. The law limited the ownership of news aggregation services only to Russian entities and citizens. Although webelieve that we currently comply with this requirement, we cannot assure that the regulator may not take a different view.In November, 2016 a draft law was introduced that aims to regulate the provision of online audiovisual services. Thedraft law proposes to impose new obligations on audiovisual services providers and limit to no more than 20% the ownershipor control, direct or indirect, by non-Russian entities and individuals of larger online audiovisual services. The proposedlegislation is drafted in general terms and could potentially apply to any service offering audiovisual content. If the currentproposal is implemented this could significantly affect our Yandex.Video service and other services that could be used tooffer audiovisual content, and we may have to spend additional resources in order to ensure compliance with newregulations, or change the operating principle of, or cease to provide, our Yandex.Video service.Businesses in Russia can be subject to efforts by financial groups seeking to obtain control through the exercise ofeconomic or political influence or government connections.Well‑funded, well‑connected financial groups and so‑called “oligarchs” have, from time to time, sought to obtainoperational control and/or controlling or minority interests in attractive businesses in Russia by means that have beenperceived as relying on economic or political influence or government connections. We may be subject to such efforts in thefuture and, depending on the political influence of the parties involved, our ability to thwart such efforts may be limited.The Russian banking and financial systems remain less developed than those in some more developed markets, and abanking crisis could place liquidity constraints on our business and materially adversely affect our business, financialcondition and results of operations.Russia’s banking and other financial systems are less well‑developed and regulated than those of some moredeveloped markets, and Russian legislation relating to banks and bank accounts is subject to varying interpretations andinconsistent application. Russian banks generally do not meet international banking standards, and the transparency of theRussian banking sector lags behind international norms. In addition, the United States and European Union have imposed“sectoral” and related sanctions on named Russian banks in connection with developments in Ukraine. See “—Adoption andmaintenance of embargo, economic or other sanctions, in particular with respect to the conflict in Ukraine, as well as similarmeasures against the countries in which we operate, may have a material adverse effect on our business, financial conditionand results of operations.”As a result, the banking sector remains subject to periodic instability. Another banking crisis, or the bankruptcy orinsolvency of banks through which we receive or with which we hold funds, may result in the loss of our deposits oradversely affect our ability to complete banking transactions in Russia, which could have a material adverse effect on ourbusiness, financial condition and results of operations.26 Table of ContentsSome of our counterparties provide limited transparency in their operations, which could subject us to greater scrutiny andpotential claims from government authorities.We do business with a number of companies, especially small companies that do not always operate in a fullytransparent manner and that may engage in unpredictable or otherwise questionable practices with respect to tax obligationsor compliance with other legal requirements. We have been approached by government authorities regarding potential taxclaims or other compliance matters in connection with such transactions. For example, in 2016 we received a claim from theRussian tax authority in respect of one of our distribution agreements with a Russian software developer. We have bothappealed the tax authority’s claim and made an accrual for it in our 2016 financial statements as we believe that due to thecurrent court practice it is more likely than not that we will lose our appeal.As we are a larger and more transparent company with greater resources than such counterparties, governmentalauthorities may seek to collect taxes and/or penalties from us in relation to such transactions on the basis that we hadknowledge of or aided such practices even when we did not.Changes in the tax systems of Russia and other countries in which we operate, as well as unpredictable or unforeseenapplication of existing rules, may materially adversely affect our business, financial condition and results of operations.Russian tax, currency, and customs laws and regulations are subject to varying interpretations and changes, whichmay be frequently revised and reviewed by the authorities. As a result, our interpretation of such tax legislation may bechallenged by the relevant authorities. Russian tax legislation largely follows the OECD approach but may be implementedin a way which is not in line with international practice or our interpretation. Moreover, under the current conditions of weakeconomic growth and reduced tax revenue, the authorities are taking a more assertive position in their interpretation of thetax legislation and, as a result, it is possible that transactions and activities that have not been challenged in the past maynow be questioned by the authorities. High‑profile companies such as ours can be particularly vulnerable to such assertivepositions of the authorities.Although we believe that our interpretation of relevant legislation is appropriate and is in accordance with existingcourt practice, if the authorities were successful in enforcing differing interpretations, our tax liability may be greater than theestimated amount that we have expensed to date and paid or accrued on our balance sheet.Generally, Russian taxpayers are subject to inspection of their activities for a period of three calendar yearsimmediately preceding the year in which an audit is carried out, with tax audits routinely undertaken at least every two years.A tax audit of our principal Russian subsidiary covering 2013 and 2014 was completed in 2016 and the resulting tax claimshave been fully accrued in our 2016 financial results.Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from reliefunder the Netherlands‑Russia tax treaty.In 2016, our principal Russian operating subsidiary distributed limited dividends to our parent company(Yandex N.V.) and applied withholding tax at a 5% rate in reliance on the provisions of the Netherlands‑Russia tax treaty.Yandex is incorporated in the Netherlands and our principal operating subsidiaries are incorporated in Russia. Ourmanagement seeks to ensure that we conduct our affairs in such a manner that our parent company is regarded as thebeneficial owner of all its incomes and 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 fromour Russian operating subsidiaries 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 Dutch resident for tax purposes or if it were deemed to have a permanentestablishment in Russia, or if the Russian tax authorities were to determine that other conditions for the application of the 5%rate are not met because, for example, if Yandex N.V. is not deemed to be beneficial owner of the dividends received,dividends paid from our Russian operating subsidiaries to our parent company would be subject to Russian withholding taxat the rate of 15%.Russian tax rules are characterized by significant ambiguities and limited interpretive guidance and are subject tochange, and we can provide no assurance that dividend withholding tax relief may not be challenged by the Russian27 Table of Contentstax authorities based on the grounds mentioned above. Furthermore, Russian tax rules regarding residency and beneficialownership which were recently introduced may change or their interpretation may evolve, thus triggering changes intaxation of dividends from our Russian subsidiaries to our parent company in the future.Based on the current state of the law and available interpretations, we believe that Yandex and our material foreignsubsidiaries should not be treated as controlled foreign corporations for Russian tax purposes. However, there are risks thatany of these rules may be interpreted or applied in a manner that may have an adverse effect on our results 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 toour Dutch parent company. Our current policy is to retain substantially all our earnings at the level of our principalsubsidiary for investment in Russia.We did not provide for dividend withholding taxes on the unremitted earnings of our non‑Dutch subsidiaries in2013 or earlier years because we considered them to be permanently reinvested outside of the Netherlands. As ofDecember 31, 2016, we had an accrual of RUB 990 million ($16.3 million) for dividend withholding tax. If circumstanceschange and we are unable to reinvest in that subsidiary’s current operations or acquire suitable businesses in Russia,U.S. GAAP would require us to record a deferred tax liability representing the dividend withholding taxes that we would berequired to pay if this subsidiary were to pay these unremitted accumulated earnings to our Dutch parent company as adividend, even if such dividends were not actually declared and paid. As of December 31, 2016, the cumulative amount ofunremitted earnings in respect of which dividend withholding taxes have not been provided is RUB 52,240 million($861.2 million). The applicable withholding tax rate is 5% and the amount of the unrecognized deferred tax liability relatedto these unremitted earnings was RUB 2,612 million ($43.1 million) as of December 31, 2016. We expect the amount ofunremitted earnings to grow as our principal Russian operating subsidiary continues to generate net income. If we wererequired to record a deferred tax liability on an amount subsequently made available for distribution it may have a materialadverse effect on our results of operations.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 ordeveloping markets or to high‑growth technology companies generally may affect the performance of our Class A sharesand could expose us to potential securities litigation, which could result in substantial costs and a diversion of ourmanagement’s attention and resources.Macroeconomic and geopolitical events in Russia in recent periods have adversely affected the value of tradedsecurities of companies with significant operations in Russia, including our Class A shares. In addition, the market fortechnology and other growth companies has generally experienced severe price and volume fluctuations that have oftenbeen disproportionate to the operating performance of those companies. These broad macroeconomic, geopolitical, marketand industry factors 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 inprice in response to various factors, some of which are beyond our control. These factors include:·macroeconomic and geopolitical developments, including those specific to the internet and online advertisingboth in Russia and globally;·quarterly variations in our results of operations or those of our competitors;·the level of use of internet search engines to find information;·fluctuations in our share of the internet search market;28 Table of Contents·the proportion of our revenues generated on our websites relative to those generated through the Yandex adnetwork or through distribution partners, as a result of the revenue sharing arrangements we enter into and theoverall volume of advertising we provide our partners;·announcements of technological innovations or new services and media properties by us or our competitors;·the amount of advertising purchased or market prices for online advertising;·the emergence of new advertising channels in which we are unable to compete effectively;·the volume of searches conducted, the amounts bid by advertisers or the number of advertisers that bid in ouradvertising system;·changes in governmental regulations, in particular those applicable to regulation of online business in Russianand globally;·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;·any major change in our directors or management;·changes in earnings estimates or recommendations by securities analysts;·our ability to compete effectively for users, advertisers, partner websites and content;·the operating and stock price performance of other companies that investors may deem comparable to us;·fluctuations in the exchange rate between currencies, including the Russian ruble and the U.S. dollar; or·general global or Russian economic conditions and slow or negative growth or forecast growth of relatedmarkets.Additionally, volatility or a lack of positive performance in the price of our Class A shares may adversely affect ourability to retain key employees, some of whom have been granted equity awards.This volatility may affect the price at which holders of Class A shares may sell such shares and the sale of substantialamounts of our Class A shares could adversely affect our trading price.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 often been instituted against these companies. Such litigation, if instituted against us,could result in substantial costs and a diversion of our management’s attention and resources.The concentration of voting power with our principal shareholders, including our founders, directors and seniormanagement, limits your ability to influence corporate matters.Our Class B shares have ten votes per share and our Class A shares have one vote per share. As of February 28, 2017,our founder, directors, senior management (and their affiliates) and principal non‑institutional shareholders together own83.88% of our outstanding Class B shares and 3.83% of our outstanding Class A shares, representing in the aggregate53.26% of the voting power of our outstanding shares. In particular, our founder, Mr. Volozh, directly or indirectly controls76.51% of our outstanding Class B shares representing 47.29% of the voting power of our outstanding shares. For theforeseeable future, therefore, our founder, directors, senior management and their affiliates will have significant influenceover the management and affairs of our company and over all matters requiring shareholder29 Table of Contentsapproval, including the election of directors, the amendment of our articles of association and significant corporatetransactions, such as a sale of our company or its assets.This concentrated control limits your ability to influence decisions on corporate matters. We may take actions thatour public shareholders do not view as beneficial or as maximizing value for them. As a result, the market price of our Class Ashares may be adversely affected.Certain of our directors and shareholders and their affiliates may have interests that are different from, or in addition to,the interests of other Yandex shareholders.Some of our directors are affiliated with investment funds or financial institutions that have investments in otherbusinesses or entities that currently or may in the future compete with us. These affiliations may require such directors torecuse themselves from consideration of certain transactions or may otherwise create real, potential or perceived conflicts ofinterest.Our Board of Directors and our priority shareholder have the right to approve accumulations of stakes in our company orthe sale of our principal Russian operating 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 ofrelated parties or parties acting in concert of the legal or beneficial ownership of shares representing 25% or more, in numberor voting power, of our outstanding Class A and Class B shares (taken together). If our board grants its approval of such shareaccumulation, the matter is then submitted to the holder of our priority share, which has a further right of approval of suchaccumulation of shares. In addition, any decision by our Board of Directors to transfer all or substantially all of our assets toone or more third parties, including the sale of our principal Russian operating subsidiary, is subject to the prior approval ofthe priority shareholder.Any holding, transfer or acquisition by a party, group of related parties or parties acting in concert of the legal orbeneficial ownership of Class B shares representing 25% or more, in number or by voting power, of our outstanding Class Aand Class B shares (taken together), without the prior approval of our Board of Directors, first, and then the priorityshareholder, will be null and void. The acquisition of shares in excess of the thresholds permitted by our articles ofassociation will be subject to certain notification requirements set forth in our articles of association. Failure to comply withthose terms would render the transfer of such shares null and void. In addition, the holders of such shares would not beentitled to the dividend or voting rights attached to their excess shares. The rights of our Board of Directors and our priorityshareholder 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 shareholdersmay 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% ormore, as described above, our multiple class share structure may discourage others from initiating any potential merger,takeover or other change‑of‑control transaction that our public shareholders may view as beneficial. Our articles ofassociation also contain additional provisions that may have the effect of making a takeover of our company more difficultor less attractive, including:·the staggered three‑year terms of our directors, as a result of which only one‑third of our directors are subject toelection in any one year;·a provision that our directors may only be removed by a two‑thirds majority of votes cast representing at least50% of our outstanding share capital;·the authorization of a class of preference shares that may be issued by our Board of Directors in such a manneras to dilute the interest of any potential acquirer;·requirements that certain matters, including an amendment of our articles of association, may only be broughtto our shareholders for a vote upon a proposal by our Board of Directors;30 Table of Contents·minimum shareholding thresholds, based on par value, for shareholders to call general meetings of ourshareholders or to add items to the agenda for those meetings, which will be very difficult for Class Ashareholders to meet given our multiple class share structure; and·supermajority requirements for shareholder approval of certain significant corporate actions, including the legalmerger or demerger of our company and the amendment of our articles of association.The Dutch public offer rules, which impose substantive and procedural requirements in connection with theattempted takeover of a Dutch public company, only apply in the case of Dutch target companies that have shares listed on aregulated market within the European Union. We have not listed our shares, and do not expect to list our shares, on aregulated market within the European Union, and therefore these rules do not apply to any public offer for our Class A shares.We rely on NASDAQ Stock Market rules that permit us to comply with applicable Dutch corporate governance practices,rather than the corresponding domestic U.S. corporate governance practices, and therefore your rights as a shareholderdiffer from the rights you would have as a shareholder of a domestic U.S. issuer.As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted in certaincases to follow Dutch corporate governance practices instead of the corresponding requirements of the NASDAQMarketplace Rules. We follow Dutch corporate governance practices with regard to the quorum requirements applicable tomeetings of shareholders and the provision of proxy statements for general meetings of shareholders. In accordance withDutch law and generally accepted business practices, our articles of association do not provide quorum requirementsgenerally applicable to general meetings of shareholders. Although we do provide shareholders with an agenda and otherrelevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitationof proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands. Accordingly, ourshareholders 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 ashareholder.As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains bothprinciples and best practice provisions for management boards, supervisory boards, shareholders and general meetings ofshareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to allDutch companies listed on a government‑recognized stock exchange, whether in the Netherlands or elsewhere, including theNASDAQ Global Select Market. The principles and best practice provisions apply to the board (in relation to role andcomposition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and thegeneral meeting of shareholders (for example, regarding anti‑takeover protection and obligations of the company to provideinformation to its shareholders) and financial reporting (such as external auditor and internal audit requirements). The DCGCrequires that companies either “comply or explain” any noncompliance and, in light of our compliance with NASDAQrequirements and as permitted by the DCGC, we have elected not to comply with all of the provisions of the DCGC. This mayaffect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch companythat fully complies with the DCGC.Because of the secondary listing of our Class A shares on the Moscow Stock Exchange, we are subject to additionaldisclosure and compliance requirements that may conflict with those imposed by the SEC and NASDAQ, and we mayexperience 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 tothat listing, we and our insiders must comply with certain disclosure and other obligations that may differ in timing andsubstance from those applicable to our NASDAQ listing. In addition, many of the obligations imposed by the Moscow StockExchange are formalistic in nature, and that exchange has limited experience in the application of its requirements tocompanies incorporated outside Russia. As a result, we may not be able to comply with all formal obligations in a mannerthat is consistent with the requirements or interpretations of that exchange.31 Table of ContentsIn addition, this secondary listing may create opportunities for trading arbitrage, particularly in connection withcurrency fluctuations between the trading in U.S. dollars on NASDAQ and in rubles on the Moscow Stock Exchange, whichcould impact the trading price of our Class A shares.Risks for U.S. HoldersWe cannot assure you that we will not be classified as a passive foreign investment company for any taxable year, whichmay result in adverse U.S. federal income tax consequence to U.S. holders.Based on certain management estimates with respect to our gross income and the average value of our gross assetsand on the nature of our business, we believe that we were not a “passive foreign investment company,” or PFIC, for U.S.federal income tax purposes for the 2016 tax year, and do not expect to be a PFIC in the foreseeable future. However, becauseour PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets insuch year, and because this is a factual determination made annually after the end of each taxable year and there areuncertainties in the application of the rules, there can be no assurance that we will not be considered a PFIC for the currenttaxable year or any future taxable year. In particular, the value of our assets may be determined in large part by reference tothe market price of our Class A shares, which has fluctuated, and may continue to fluctuate, significantly. If we were to betreated as a PFIC for any taxable year during which a U.S. holder held our Class A shares, certain adverse U.S. federal incometax consequences could apply to the U.S. holder. See “Taxation—Taxation in the United States—Passive foreign investmentcompany considerations.”Any U.S. or other foreign judgments you may obtain against us may be difficult to enforce against us in Russia or theNetherlands.We have only very limited operations in the United States, most of our assets are located in Russia, our company isincorporated in the Netherlands, and most of our directors and senior management are located outside the United States. As aresult, it may be difficult to serve process on us or these persons within the United States. Although arbitration awards aregenerally enforceable in Russia and the Netherlands, and Russian courts may elect to enforce foreign court judgments as amatter of international reciprocity and judicial comity, you should note that judgments obtained in the United States or inother foreign courts, including those with respect to U.S. federal securities law claims, may not be enforceable in Russia orthe Netherlands. There is no mutual recognition treaty between the United States and the Russian Federation or theNetherlands, and no Russian federal law or Dutch law provides for the recognition and enforcement of foreign courtjudgments. Therefore, it may be difficult to enforce any U.S. or other foreign court judgment obtained against our 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 fromthe rights and responsibilities of shareholders under U.S. law.Our corporate affairs are governed by our articles of association and by the laws governing companies incorporatedin the Netherlands. The responsibilities of members of our Board of Directors under Dutch law are different than under thelaws of some U.S. jurisdictions. In the performance of its duties, our Board of Directors is required by Dutch law to considerthe interests of Yandex, its shareholders, its employees and other stakeholders and not only those of our shareholders. Also,as a Dutch company, we are not required to solicit proxies or prepare proxy statements for general meetings of shareholders.In addition, the rights of our shareholders are governed by Dutch law and our articles ofassociation, and differ from the rights of shareholders under U.S. law. For example, Dutch law does notgrant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upona merger or consolidation of the company. 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 in1997. Our principal Russian operating subsidiary, Yandex LLC, was formed in 2000, as a wholly owned subsidiary of ourformer Cypriot parent company. In 2007, we undertook a corporate restructuring, as a result of which Yandex N.V.32 Table of Contentsbecame the parent company of our group. Yandex N.V. is a Dutch public company with limited liability. Its registered officeis at Schiphol Boulevard 165, 1118 BG, Schiphol, the Netherlands (tel: +31‑20‑206‑6970). The executive offices of ourprincipal operating subsidiary 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 2016, see “Operating and Financial Review andProspects—Recent Acquisitions”Business OverviewOur BusinessYandex is one of the largest internet companies in Europe, operating Russia’s most popular search engine and itsmost visited website. Yandex’s goal is to help consumers and businesses better navigate the online and offline world. Since1997, Yandex has delivered world-class, geographically relevant search and locally tailored experience on all digitalplatforms, based on innovative technologies. Additionally, we have developed market-leading on-demand transportationservices, navigation products, and other mobile applications for millions of consumers across the globe.Yandex is a technology company that builds intelligent products and services powered by machine learning. Ourproducts and services are based on complex, unique technologies that are not easily replicated. Benefiting from Russia’slong‑standing educational focus on mathematics and engineering, we have drawn upon the considerable local talent pool tocreate a leading technology company.We derive substantially all of our revenues from online advertising. We enable advertisers to deliver targeted,cost‑effective ads that are relevant to our users’ needs, interests and locations. We serve ads on our own search results andother Yandex webpages, as well as on thousands of third‑party websites that make up our Yandex ad network. Through ourad network, we extend the audience reach of our advertisers and generate revenue for both our network partners and us. Weoffer a variety of ad formats to our advertisers, including performance-based, brand and video advertising formats acrossdifferent platforms. Other revenue streams come from our e‑commerce offerings, classifieds and e-hailing service.Our businesses are organized in the following operating segments:·Search and Portal, which includes all services offered in Russia, Ukraine, Belarus and Kazakhstan, other thanthose described below;·E‑commerce (including the Yandex.Market service);·Taxi (including the Yandex.Taxi service);·Classifieds (including Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel); and·Experimental businesses, where we aim to prove new business models. These include:·Media Services (including KinoPoisk, Yandex.Music, Yandex.Afisha and Yandex.TV Program);·Yandex Data Factory;·Discovery Services (including Yandex Zen and Yandex Launcher);·Search and Portal in Turkey.33 Table of ContentsSearch and PortalWe offer a broad range of search, location‑based, personalized and mobile services that are free to our users and thatenable them to find relevant and objective information quickly and easily and to communicate and connect over the internet,from both their desktops and mobile devices.Yandex SearchOur search engine offers almost instantaneous access to the vast range of information available online. We utilizelinguistics, mathematics, machine learning and AI to develop proprietary algorithms that efficiently extract, compile,systematize and present relevant information to users. Our organic search results are ranked by computer algorithms basedexclusively on relevance, and we clearly segregate organic results from paid results to avoid confusing our users.We continuously seek to enhance our search capabilities by regularly expanding our algorithms. In 2016 weintroduced a new neural networks based search algorithm, code-named ‘Palekh’, to improve the quality of answers to long-tail queries. We continuously strive to develop innovative new concepts for our search engine.Yandex Search generated 56.4% of all search traffic in Russia in 2016 and 55.5% in February 2017, according toLiveinternet.ru. The percentage of our total search traffic, generated from mobile devices averaged approximately 31% in Q42016 compared with 27% in Q4 2015, while the percentage of our search revenues generated from mobile devices increasedto approximately 25% from approximately 19% respectively.Maps and Location‑based ServicesYandex.Maps. Our Yandex.Maps provide high‑quality, detailed maps of Russia, Ukraine, Kazakhstan, Belarus, aswell as a detailed map of Turkey and satellite images of the whole world. We offer our users panoramic views, publictransportation routes and driving directions with voice controls and turn by turn navigation.We use our technology and licenses to create and edit maps from raw data, including satellite images, GPScoordinates and live user feedback. In 2016, we implemented a new data update engine, which allows us to update our mapstwice a week and introduced pedestrian routes.Yandex.Maps is also available via application programming interfaces, or APIs, which allow developers to embedand use our interactive maps in third‑party websites and applications, as well as to add extra layers of information—forexample, to offer a map showing the location of a restaurant or a hotel.We also offer Yandex.Navigator, our free standalone mobile application providing turn‑by‑turn navigation. Itincorporates a voice input function and a large set of voice commands that allow users to interact with the app withouttouching the screen, includes important features such as speed limit warnings and provides parking information. In 2016 weintroduced new features of natural guidance, which suggests physical objects as reference during the route, voicenotifications for accidents, road works and smart lane info. It is Yandex’s most popular mobile app in terms of usage. In 2016,Navigator along with a number of our other apps was integrated into the onboard navigation units of certain trim levels ofToyota Camry, one of the brand’s most popular models in Russia.The Yandex.Transport app provides users with real‑time data on public transport in a number of Russian cities. In2016, we launched Yandex.Transport in a number of cities across the globe to understand the scalability of the app. Outsideof Russia, Yandex.Transport currently operates in Helsinki and Tampere, Finland, Budapest, Hungary, Sydney and Brisbanein Australia and Auckland in New Zealand.Personal ServicesYandex.Mail. Yandex.Mail provides users with fast and easy access to their email.Yandex.Disk is our cloud‑based storage service that allows users to upload, store, read and share their photos, videosor documents online and access them at any moment from any device.34 Table of ContentsYandex.NewsYandex.News, the most visited online news aggregation service in Russia, providing a comprehensive mediaoverview for our users. We aggregate and present local, national and international news, currently from more than 6,700licensed news sources. The selection of news is fully automated and editorial-free.Yandex.WeatherOur Yandex.Weather service offers hyperlocal weather information based on our proprietary weather forecastingtechnology, Meteum. Powered by machine learning, it gives accurate forecasts for areas as local as individual neighborhoodsacross Russia. In 2016, Yandex started providing users in over 20 Russian cities with short term precipitation forecasts basedon machine learning and neural networks. In summer 2016, we also announced the commercial launch of a Yandex.WeatherAPI for B2B clients.Yandex BrowserOur Yandex Browser is the second most popular browser on desktops and the most popular non-native browser onmobile platforms in Russia. It is also the fastest growing browser on the Russian market. Yandex Browser makes surfing theinternet safe as we continue to focus on the security and privacy of our users. In 2016 we enhanced our “Protect” technologywith payments protection and malicious ads blocking.In June 2016, we incorporated Zen, our personal recommendation service, directly into the Yandex Browser. Zenselects news articles, blog posts, and other publications that a user may find interesting. The selection is based on the user’sbrowsing history and stated preferences.The combined share of searches processed through Yandex Browser in Russia reached 18.5% in December 2016,according to Yandex.Metrica.Distribution PartnershipsIn order to provide easier access to our services, we partner with other browser developers. Our most significantdistribution partner is Opera, which offers mobile and desktop browsers, and where Yandex is the default search in certainsearch entry points. Yandex search is also the default search engine in Mozilla Firefox in Russia and in Turkey. In late 2015,we announced a strategic cooperation agreement with Microsoft in Russia, Belarus, Kazakhstan, Ukraine, Turkey, and severalother countries, where Yandex is offered as the default homepage and search engine for the Microsoft Edge browser as well asInternet Explorer across Windows 10 devices.Yandex is currently included as the default search engine on a limited number of mobile handsets sold in Russia,and as one of the search options in the Safari browser on Apple devices running iOS7 and later versions of the system. Webelieve that Google remains the default search engine on all iOS devices and almost all Android devices. Our services andapplications are also distributed by a limited number of OEMs, retailers, browser makers, and telecom operators in Russia. Webelieve that distribution is an important part of our overall marketing strategy and serves to increase our user base.Our Monetization and Advertiser ServicesWe offer a variety of ad formats to our advertisers, including performance-based, brand and video advertisingformats.Performance‑based ads are principally targeted to a particular user query on our search engine result pages, and onsearch result pages of our partners, as well as to the content of a particular website or webpage being viewed, or to userbehavior or characteristics. Such ads are clearly marked as paid advertising and are separate from our organic search resultsand non-advertising content.Most of our revenues are generated from performance‑based advertising, on a pay‑per‑click basis, with a smallerportion generated from brand advertising and video advertising, based on the number of impressions delivered.35 Table of ContentsWe actively monitor the ads we serve, both automatically and manually, in order to help ensure the relevance of the ads aswell as compliance with applicable laws.Yandex.DirectYandex.Direct is our auction‑based advertising placement platform, which uses auction theory and relies on ourdistributed infrastructure to process millions of auctions every day. Yandex.Direct lets advertisers cost‑effectively deliverrelevant ads targeted at particular search queries or content on Yandex websites or third‑party websites in the YandexAdvertising Network. Advertisers may use our automated tools, often with little or no assistance from us, to createperformance‑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, online sign‑up process that enables advertisers to create and quickly launch theiradvertising campaigns. Advertisers may also work with our sales staff to design and implement more specialized orsophisticated advertising campaigns. We also offer a Yandex.Direct mobile app to better facilitate advertisers’ access to ourservice to manage their advertising campaigns.Performance‑based ads on our desktop search engine results page (SERP) appear in one of several generalcategories: top placement, appearing above the organic search results and featuring up to three paid links; and a southernblock, which appears either below the organic search results or the right-hand block, which appears to the right of the organicsearch results, featuring up to nine paid links in total. Performance‑based ads on our mobile SERP appear in top placement,above the organic search results and featuring up to two paid links, and up to one paid link appearing below the organicsearch results.Yandex.Direct uses a Vickrey‑Clarke‑Groves (VCG) auction to serve ads on our SERP. VCG auction motivatesbidders for truthful bidding. In the VCG auction, the cost‑per‑click price is based on the difference between the amount oftraffic in different ad positions. If an ad in the top position yielded 15% more clicks than it would have done in the secondposition, the advertiser would pay only for these additional clicks if their ad moved up from the second position to the top. Incontrast to the second‑price auction, the cost of baseline clicks in the VCG auction remains the same regardless of the ad’sposition. The average cost per click grows in proportion to the increasing amount of traffic, making advertisers compete foradditional traffic.We’ve been constantly introducing new technologies and algorithms to upgrade our ranking algorithms and toincrease relevance of ads on Yandex SERP and on the Yandex Advertising Network. We are continuously analyzing anddeveloping additional targeting factors to deliver relevant advertising to the end use and maximize the total economic valueof ads for our advertisers.In 2016 we greatly improved our “broadmatch” capabilities both on Yandex search and in our Advertising Network.This feature is extremely helpful for advertisers who want to significantly broaden their reach through online advertising. In2016 we also added a number of new ad formats, helping advertisers achieve their goals, including a private marketplace – atool for private deals between advertisers and publishers; priority placement for video ads on Yandex.Video website, CPI(cost-per-install) ads to promote mobile applications, smart banner ads with dynamic content that is personalized forindividual users based on their interests, and Yandex.Audience, our reach-your-client and look-alike targeting tool whichhelps advertisers target new clients more effectively based on their client base and look-a-like characteristics thatYandex.Audience offers to them.Our web analytics tool, Yandex.Metrica, is the most popular web analytics system in Russia. It allows advertisers innear real‑time to analyze the “post‑click” behavior of users to evaluate the key efficiency parameters of their advertisingcampaigns—for example, to analyze the conversion rate, or the cost of attracting a visitor who performs the desired action.Based on this data, our advertising customers are able to choose the most efficient tools and settings for their advertisingcampaigns.Programmatic advertisingWe have been developing a range of programmatic advertising products, which utilize real‑time biddingtechnologies to provide effective solutions to our publisher and advertiser partners. Yandex RTB ad exchange connects toour performance‑based demand‑side platform (DSP) Yandex.Direct, to our display‑based DSP “AWAPS” as well as tointegrated third party DSPs. Our RTB ad exchange leverages the wealth of targeting data generated by our own DataManagement Platform, including Crypta, search and browsing history, and so on. The RTB ad exchange is connected to36 Table of Contentsmany of our Yandex Advertising Network partners who have chosen to display ads from our RTB ad exchange as well as orin lieu of our regular Yandex.Direct ads. In addition, through the acquisition of ADFOX, we provide a supply‑side platform toour publisher partners. ADFOX is able to mediate in real‑time between programmatic brand ads from AWAPS,performance‑based ads from Yandex.Direct, ads from integrated third party DSPs and publisher’s own direct sales.Yandex Ad NetworkOur Yandex Advertising Network partners include search websites, for which we provide search capabilities, as wellas contextual network partners, where we serve ads based on user behavior or characteristics or website content. Among ourpartners are some of the largest Russian websites, including Mail.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 theYandex Advertising Network, our partners can deliver performance‑based ads on their search results pages or websites. Ouradvertising algorithms use our proprietary MatrixNet technology, which optimizes the click‑through rate on our networkthrough improved click prediction.To date, we have not guaranteed any minimum revenues to our network partners but may consider doing so on aselective basis in the future.We screen applicants for the Yandex Advertising Network and favor websites with high‑quality content and stableaudiences. We believe that we will continue to attract high‑quality websites to our network through our solid relationshipswith advertisers, our track record in monetizing internet traffic and content, and our attractive revenue‑sharing propositions.In 2016 we launched ‘relevance-match’ technology, where we show ads to users based on their look-alikecharacteristics. In 2016 we also extended bid correction algorithms to our Ad Network. Improvements in our relevancyforecast allow us to predict the quality of a potential click. In case the formula suggests that the quality of click will beinsufficiently high, bid correction either automatically reduces advertisers’ bid or chooses not to show the ad at all. Whilethis reduces our potential revenue, it significantly increases advertisers’ trust and loyalty and motivates our publisherpartners to focus on improving the quality of their traffic.Mobile AdvertisingIn 2016 we significantly widened options for advertisers to promote their goods and services on mobile. We areoffering our advertisers to display ads on mobile versions of Yandex services, Advertising Network partner websites, andmobile applications. Impressions are sold on the basis of an auction (Real-Time Bidding) where the cost of an ad impressionis determined through bidding between advertisers, rather than on a fixed sum basis.Yandex.Direct also now features ad formats specifically developed to tap into the fast-growing mobile app installmarket. These ads appear in search results and on our ad network partner sites and apps on mobile devices. Tapping on thead, the user is automatically redirected to the app’s page in the app store where they can view more information anddownload it. In terms of pricing advertisers can either use regular bid management strategies or choose between average CPIor maximum number of installations in one week.Yandex Location‑Based Priority PlacementThrough partnerships with dozens of regional business directories, we compile and update our ownYandex.Spravochnik—a business directory covering the whole of Russia and other neighboring countries. We supplementthe business directory with data mined from the web, as well as with direct submissions from 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. Our Geo‑Direct Business Directory service allows businesses to pay for a premiumplacement on our maps, including maps returned in our search results, highlighting their address and allowing users to accesstheir contact details with a single click. This advertising product is designed primarily for small and local businesses—forexample, hairdresser salons and auto repair shops, as well as restaurants or37 Table of Contentsbank branches. We offer this service for a fixed price on a fixed‑term basis, and it can be ordered through our regionalpartners and advertising agencies, as well as directly through our online interface.In Q3 2016, we started our experiments with monetization of Yandex.Navigator. It is at an early stage, but we areseeing interest from a number of offline businesses to be promoted within Yandex.Maps and Yandex.Navigator.E‑commerceLaunched in 2000, Yandex.Market is one of the most popular services in Russia, providing product information,price comparisons and consumer generated reviews of products and online retailers. We aggregate price, product andavailability information from thousands of active online and “brick and mortar” retailers, and currently feature more than120 million offerings in more than 2,000 product categories from over 20,000 participating merchants.Yandex.Market gives retailers an additional platform to reach customers seeking specific retailer, product or priceinformation. Merchants submit their product catalogs and price lists to us in a structured online format, enabling us toprovide detailed information in response to relevant user queries, either through our search engine or our Yandex.Marketservice. Yandex.Market incorporates our proprietary recommendation technology which provides users with personalizedproduct recommendations.Yandex.Market is priced on a cost‑per‑click (CPC) basis, similar to Yandex.Direct and also operates on a take-rate-based model. In September 2016 we started to actively switch certain goods categories in several regions to the take-rate-based model as we consider it beneficial to both merchants and consumers.TaxiYandex.Taxi is our e-hailing service. Established in 2011, Yandex.Taxi has experienced exceptional growth overthe years becoming the leader of e-hailing market in Russia. Our primary competitors include Uber and Gett. In 2016,Yandex.Taxi launched its service in 36 new cities and as of December 31, 2016 was operating in 46 cities across Russia,Georgia, Armenia, Kazakhstan, Belarus and Ukraine. Competitive pricing and short wait times have led to a rapid uptake ofthe services. Secular tailwinds include the introduction of paid city parking in many urban areas, aging public transportationinfrastructure, and high costs of car ownership.In September 2016, Yandex.Taxi lowered its minimum tariffs in Moscow and many other cities, introducedminimum fare guarantees for drivers and rolled out surge pricing, which improves our ability to balance driver supply andpassenger demand. Yandex.Taxi benefits from our expertise in machine learning allowing us to increase efficiency andimprove fleet utilization through the introduction of ride-chains and ride dispatching algorithms. As a result of theseimplementations and active geographical expansion of Yandex.Taxi during 2016, the number of rides completed through theservice grew 452% in December 2016 compared with December 2015 and reached 16.2 million rides.ClassifiedsYandex’s Classifieds business unit includes Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel.Auto.ru. Auto.ru is our classifieds platform for used and new cars, other private and commercial vehicles and spareparts. Our goal is to provide our users with the means to find the exact car they are looking for. We care about the quality ofthe cars advertised on our platform. In 2016 Auto.ru introduced certification centers for used cars, which allow sellers to havetheir cars inspected along up to 300 parameters, thus providing buyers with more information about the car they are buying.Security of our users is another priority. In 2016 we began to route calls to sellers in a way that protects our sellers from spamcalls and SMS’s. Analysis of the indirect data about the calls, like frequency and duration, allows us to improve our listingranking and adjust moderation processes.We monetize Auto.ru through advertising, value added services (VAS) and listing fees for dealers and individualsselling more than one car per month.Yandex.Realty is our real estate classifieds service, acting as both an aggregator of ads from other websites and aplace where private individuals and realtors can place their listings directly. The service provides listings for both sale38 Table of Contentsand rental of apartments, rooms, houses and vacation homes. In 2015 we added the option to place listings for flats innewly‑built or under‑construction apartment complexes in Moscow.Yandex.Jobs, our service for job seekers, was launched in 2010 and in 2015 underwent a complete redesign, withthe new version initially launched as a mobile app for Android and iOS. The focus of the new version is on blue collar andservice industry jobs. Job search is highly simplified and users can call the potential employer directly from the app. Theservice aggregates vacancies from a number of partners.Yandex.Travel. In March 2015 we launched our tour aggregator Yandex.Travel service. It allows users to search fora vacation using multiple criteria and taking their personal preferences into account. Its unique feature is the ability tocompare the price of a holiday provided through an agency with a “do it yourself” trip where users buy tickets and bookhotels on their own. We also provide information such as hotel reviews that we generate using our fact extraction technology.ExperimentsAside from our core business and our newly established business units, we have a number of divisions that wecurrently consider to be experimental in nature. We believe that some of them have a good chance of transforming intoseparate business units in the future.Media ServicesOur Media services unit consists of a number of services that provide our users with streaming audio, video andother entertainment data. These are:·KinoPoisk is the largest and the most authoritative Russian language source for movie, TV series and celebritycontent and the #1 movie website in Russia with more than 30 million unique monthly visitors. By providingthe users with critic and user reviews and ratings, personalized recommendations, trailers, photo galleries, trivia,entertainment news, box-office data, editorial feature sections as well as local movie showtimes and ticketing,the service helps to decide what to watch and where to watch it. It also features KinoPoisk+ platform allowingusers to watch movies from official online cinemas. ·Yandex.Music is our music streaming service, offering users millions of tracks and facilitating new musicdiscovery with its recommendation tools and Radio feature. Yandex.Music has a free web version with 20million monthly users and mobile app that includes in-app subscriptions and is offered as both Yandex’s ownservice and as a white label product for mobile operators. The number of subscribers tripled in 2016 passing the250,000 users mark. Yandex.Music has recently made its way to AppAnnie’s top-5 mobile apps by revenue inRussia in 2016 taking fourth place.·Yandex.Afisha. Yandex.Afisha (“playbill”) allows users to select entertainment from a wide variety of options.The service provides an opportunity to buy tickets to cinemas, theaters and concerts online. It incorporatespersonalized recommendations and is currently active in over 140 cities across Russia.·Yandex.TV Program. Yandex.TV Program is a service providing users with an up to date schedule ofbroadcast, cable and digital TV channels as well as an option to view certain TV channels online.Yandex Data FactoryYandex Data Factory (YDF) is aimed at developing big data analytics solutions for companies in finance, retail,telecom, manufacturing, healthcare and other industries. Our YDF team consists of machine learning and data analyticsexperts who use data science to improve businesses’ operations, revenues and profitability. Yandex’s unique proprietarytechnologies applied in our own products are now available to help businesses utilize their accumulated data, includingthrough tailored cross‑sell and upsell recommendations, customer churn prevention, demand forecasting and manufacturingprocess optimization.39 Table of ContentsIn 2016, Yandex Data Factory continued to execute successful projects for a number of Russian and internationalcompanies, including Magnitogorsk Iron and Steel Works (MMK), Russia’s third largest steel works, Pyatyorochka, one ofRussia’s leading grocery chains, and the Bank of Russia, the country’s central bank.Discovery ProductsYandex Zen scours the web for fresh content and then presents it in an endless feed that informs, intrigues, andinspires users with interesting articles, news, videos, images, and other content matching the user’s personal interests. YandexZen is a core component of Yandex Browser and Yandex Launcher and is also available as a Software Development Kit(SDK) for third party mobile software developers. All the products incorporate the latest developments in machine learningand artificial intelligence.In June 2016, we started to enrich the experience of our Yandex Browser users with Zen, which helped increase userengagement and created additional inventory for ads. Average time spent per user on Zen is 20 minutes. Throughout 2016 wecontinued to roll out Zen globally and currently it is available to users in over 100 countries.Yandex Launcher is our take on the Android interface, allowing users to adapt their Android phones to fit theirstyle and fill it with interesting content from all over the internet. Yandex Launcher has a number of helpful features such asgrouping apps on a user’s smartphone into convenient categories. It also provides users with easy access to Yandex Zen.After an initial launch in Latin America we also released the product in Russia and other countries.In October 2016, we announced the launch of a global partnership program for Android handset manufacturers andtelecom operators. Yandex’s partners preinstall our proprietary products, Yandex Browser and Yandex Launcher, to achievedevice differentiation, enhance end user experience and gain additional income through our ad revenue sharing model. Thefirst round of Yandex partners includes Fly, LAVA, MTS, Multilaser, Posh Mobile, Wileyfox and ZTE, with productsavailable in Europe, India, Latin America and Africa.Search and Portal in TurkeyAside from Russia, Ukraine, Belarus and Kazakhstan, Yandex is also available in Turkey, providing users in thiscountry with Yandex’s major products such as search, mail, maps, traffic, weather and browser. In 2011 we opened an officein Istanbul and launched the portal yandex.com.tr in Turkey. The main focus of our Turkish office is providing advertisingservices to local customers and promoting our core services, mainly search and geo‑informational services, for Turkish users.Our TechnologyYandex is a technology company, that pioneered machine learning, artificial intelligence and neural networks earlyon. This expertise uniquely positions us on the global technology arena, allows us to innovate on our local markets and tocontinuously improve our products and services based on complex, unique technologies that are not easily replicated.Yandex distributed infrastructureWe seek to ensure the speed and reliability of our services regardless of the user’s location by operating our ownContent Delivery Network (CDN) of points of presence in major cities throughout Russia and the other countries in which weoperate. This network allows us to support reliable 24/7 operations, including server‑based computations, research anddevelopment work, and user and advertiser services. We use proprietary computer architecture to link these clusters ofservers, as well as proprietary computational software that operates across these distributed servers, including software thatenables us to deploy and monitor software across our systems. This allows us to use relatively inexpensive off‑the‑shelfservers as the foundation of our robust and effective systems for redundant, distributed data storage, retrieval and distributedcalculations. Geographic distribution of our servers decreases the cost of internet usage for our users, increases the accessspeed for our services and increases the stability and dependability of our service offerings. This structure provides redundantfail‑safe capacity such that the failure of a single facility would not cause our websites to stop functioning.40 Table of ContentsAdvertisersOur advertisers include individuals and small, medium and large businesses throughout the countries in which weoperate, as well as large multinationals. Small and medium‑size enterprises purchase the bulk of our performance‑basedadvertising. No particular advertiser accounted for more than 1.2% of our total revenues in 2014, 2015 or 2016.Sales and Advertiser SupportWe have an extensive sales and support infrastructure, with sales offices in a number of cities in Russia and Ukraine,as well as Lucerne, Switzerland, Newburyport, Massachusetts, USA, and Shanghai, China. We attract advertising customersthrough both online and offline sales channels.The substantial majority of our advertisers use our automated Yandex.Direct service to establish accounts, createads, target users and launch and manage their advertising campaigns. We provide email and telephone support for thesecustomers. Our largest advertising clients are served by a dedicated sales team. These companies may request strategicsupport services, which include a dedicated accounts team, to help them set up and manage their campaigns. Our sales teamspecialists are able to help advertisers with tasks such as selecting relevant keywords, creating effective ads and audiencetargeting, thus measuring and improving advertisers’ return on investment.The Yandex ad network follows a similar model. Most of the websites in the network submit their applicationsthrough Yandex.Direct’s automated partner interface. Our direct sales force focuses on building relationships with our largestpartners to help them get the most out of their relationship with us.We also have relationships with different advertising salesagencies placing online advertising. MarketingWe engage in significant marketing efforts directed first and foremost at internet users, as well as advertisingagencies, advertisers and webmasters. Our marketing efforts are focused above all on delivering an optimal user experiencewith every Yandex product and service. We believe that satisfied users are the best and most credible advocates for ourservices. In order to improve user satisfaction and loyalty and to continue to use our products and services as marketing tools,we constantly experiment with and improve the design, technology and interface of these products and services. Althoughwe believe that word of mouth is the best advertising strategy, we also view advertising campaigns in online and traditionalmedia as an important element of our efforts to promote our brand, as well as key services. We also invest heavily into ourthree business units, E‑commerce, Taxi and Classifieds, to grow customer awareness, increase user base, increase usage in theexisting markets and penetrate into other geographies.CompetitionWe operate in a market characterized by rapid commercial and technological change, and we face significantcompetition in many aspects of our business. We currently operate principally in Russia, Ukraine, Belarus, Kazakhstan andTurkey. We face competition from global players such as Google and local players such as Mail.ru Group, both of which offerproprietary 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 its first office in Russia in 2006. In addition to its search solutions, Google offers onlineadvertising and information and other search services similar to ours, including services similar to Yandex.Direct andYandex.Maps. We expect that Google will continue to use its brand recognition and financial and engineering resources tocompete with us.In terms of domestic players, our principal competitor is Mail.ru Group. In early 2010, Mail.ru Group launched itsown search platform, and in July 2013 announced that it had fully switched to its proprietary search technology in organicsearch results. We have entered into a partnership with Mail.ru Group pursuant to which Mail.ru Group uses theYandex.Direct advertising system to power paid search results on its properties. Mail.ru Group offers many communicationservices, including Russia’s most popular webmail, social networking and messenger services. 41 Table of ContentsThe following table presents a comparison of Russian search market share, according to Liveinternet.ru, based onsearch traffic generated: 2014 2015 2016 Yandex 60.9% 57.6% 56.4%Google 29.3% 34.5% 37.2%Mail.ru 7.3% 6.3% 5.4%We also face competition from the Russian and international websites of Microsoft and other established companiesand start‑ups that are developing search and online advertising technologies. We also compete with online advertisingnetworks, such as Google and MyTarget, which direct online advertising on a number of popular Russian websites.We believe that social networking sites, such as Facebook, Twitter, and Mail.ru Group’s Vkontakte, Odnoklassnikiand My World services, will become significant competitors for online ad budgets. These sites derive a growing portion oftheir revenues from online advertising, and are experimenting with innovative ways of monetizing user traffic. In light oftheir very large audiences and the significant amount of proprietary information they can access and analyze regarding theirusers’ needs, interests and habits, we believe that they may be able to offer highly targeted advertising which could createincreased 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 result in increased competition for users.In certain vertical areas, in particular those in which our business units operate, we compete with niche services,including e‑commerce, video search, online news aggregators and dictionaries, real estate and automobile services, andspecialized search apps for mobile devices. Our Yandex.Taxi service competes with Gett and Uber as well as a number ofregional players across Russia. Our e‑commerce services face competition from a number of local players acting as bothmerchants and marketplaces, Avito, which acts as a marketplace for merchants and private individuals, Youla, and a numberof international players popular with Russian users, especially those from China such as Aliexpress. In addition, it has beenrecently speculated that Sberbank and AliExpress are considering an e-commerce joint venture, which could potentiallycompete with Yandex.Market. Our Classifieds services compete with Avito in most areas as well as a number of playerspresent in specific industries such as CIAN in real estate and Drom.ru in automobile sales.We also face competition from other search and service providers in establishing relationships with devicemanufacturers, such as mobile and tablet computer makers, and access providers, such as internet service providers. Suchcompanies have a significant degree of control over the distribution of products and services, including by offering orestablishing exclusive arrangements for “default” search features or other services and bundling them with their offerings.Our users typically have direct relationships with these companies, and may be influenced by economic or other factors indeciding which search or other services to use.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 asingle package for pre installation by device manufacturers, as well as employing exclusive dealing and other restrictivepractices to increase its search market share and ensure the presence of its other services on Android devices. In September2015, FAS determined that Google had breached Russian antitrust laws. Google was ordered by FAS to refrain from anti-competitive behavior and to take action to restore competition and allow third party services such as Yandex search to bepre-installed on Android devices. Google appealed FAS’s decision to the Arbitrazh Court of Moscow and then to the NinthArbitrazh Court of Appeal: both appeals were unsuccessful for Google. Google is further appealing the FAS’s decision. Science and EducationOur team of specialists represents many scientific disciplines, including mathematics, data analysis, programmingand linguistics. Besides working on products and technologies at Yandex, some of our experts teach, lecture and trainstudents and young specialists.We also run our own educational programs. The Yandex School of Data Analysis, offering free courses for universitygraduates and senior high school students, has been running since 2007. The school trains specialists in data42 Table of Contentsprocessing, data analysis and fact extraction. The school’s graduates find employment at Yandex and many other companies.Yandex also has schools for project managers, user interface developers, designers and other specialists in IT.We also partner with Russia’s leading research centers and universities, including the Moscow Institute of Physicsand Technology and the Higher School of Economics. Yandex’s experts give lectures to high school students. We sponsor anumber of school contests in computer programming, mathematics and linguistics. In 2016 Yandex launched a project toteach programming to school children. Called Yandex.Lyceum, it started classes in October in Saratov, Penza, Kaluga andTambov, with the support of regional governments and ministries overseeing education and IT. In the future, the plan is toexpand the project to most large cities across Russia.Russia’s largest technology conference, Yet Another Conference, which is organized by Yandex every year, gathersindustry experts from all over the world. We also run scientific conferences on machine learning, as well as seminars, lectures,workshops and master classes for those who wish to make or have already made a career in the technology industry.Employees and Workplace CultureWe place a high value on technological innovation and compete aggressively for talent. We strive to hire the bestcomputer scientists and engineers, as well as talented sales, marketing, financial and administrative staff. We seek to create adynamic, 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 5,463 at December 31, 2015 to 6,271 at December 31, 2016. As of December 31,2016, we had 3,709 employees related to product development cost category, 2,095 employees related to sales, general andadministration, and 467 employees related to cost of revenues. Intellectual PropertyWe rely principally on a combination of trademark, copyright, related rights, patent and trade secret laws in Russiaand other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technologyand our brand. We enter into confidentiality and patent assignment agreements with our employees and consultants andconfidentiality agreements with other third parties, and we rigorously control access to our proprietary technology.Our patent department is responsible for developing and implementing our group‑wide IP protection strategy inselected jurisdictions. We have filed more than 500 patent applications to date, of which more than 100 have resulted inissued 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 InternationalClassification of Goods and Services) among consumers of such services on the basis of intensive use. Under Russian law, theprotection granted to well‑known trademarks is extended to non‑homogeneous goods and services if customers associatespecific use of the designation by third parties with the rights holder and the rights holder’s legitimate interests are infringed.Yandex is also a registered trademark in Ukraine, the United States, the European Union and other countries under theMadrid Agreement and Protocol. We have other registered trademarks in Russia. We continue to file applications to registernew trademarks and widen the country coverage of our existing trademarks. Most of the software used by our services ordistributed by Yandex to our users is either developed by our employees or by independent contractors who transfer all rightsto 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 news content providers in Russia are on “content‑for‑traffic” terms, pursuant to which weobtain access to news content for free in consideration of the user traffic that accesses the content providers’ websites throughour search engine. We license or purchase other additional content. We do not knowingly include content on our websitesthat we do not have the legal right to include.43 Table of ContentsWe do not own the content generated or posted by users on our websites. As with all websites that hostuser‑generated content, we are potentially liable for any intellectual property infringement committed by the creator of thatcontent. If we receive a complaint from a party that user‑generated content on our websites infringes that party’s copyright orrelated rights, we examine the content in question. If we are unable to confirm the violation independently, we request aformal letter of complaint from the notifying party. We then contact the party that has posted the content, and give thatperson two options: either remove the content, or allow us to provide his or her personal details to the notifying party so thatthat party may defend its rights. In the event of any court decision in the matter, we comply with the decision. If thepotentially offending party does not respond, we remove the content.FacilitiesOur principal operating subsidiary currently leases a total of approximately 55,000 square meters in a singlelocation in central Moscow that serves as our group’s headquarters. In December 2016 we signed a new contract to leaseapproximately 10,000 square meters of office space in a business center in central Moscow, which will house some of ourdivisions. We or our operating subsidiaries also lease or own office space in a number of cities in Russia and Ukraine. Wealso lease offices in Newburyport, Massachusetts; Istanbul, Turkey; Lucerne, Switzerland; Minsk, Belarus; Berlin, Germany;Schiphol, The Netherlands; Shanghai, China and other locations. We operate data centers in Moscow and other regions ofRussia, as well as in Finland. We have points of presence in a number of cities in Russia and elsewhere. Taking into accountthe projected demand for our services, we continuously evaluate the capacity and locations of our data centers to determinethe most cost‑effective manner of delivering reliable services to our users.Government RegulationWe are subject to an extensive and constantly evolving legal framework in Russia and other jurisdictions applicableto the internet business. As explained in more detail below, there are also a significant number of additional laws andregulations currently being debated and considered for adoption in Russia and other countries where we operate which, inthe event of adoption, might require us to make substantial adjustments to our business practices.Advertising RegulationThe principal Russian law governing advertising, including online advertising, is the Federal Law No. 38‑FZ “OnAdvertising,” dated March 13, 2006 (as amended) (the “Russian Advertising Law”). The Russian Advertising Law prohibitsadvertisements for certain regulated products and services without the required certification, licensing or approval. Forexample, advertisements for products such as tobacco, pharmaceuticals and medical equipment, food supplements and infantfood, financial instruments or securities and financial services as well as incentive sweepstakes and advertisements aimed atminors and some other products and services must comply with specific requirements and must in certain cases beaccompanied by certain required disclaimers. Additionally, Russian law contains certain prohibitions regarding theadvertising of alcohol and medical services. In addition, the distribution of advertisements over the internet (for example, byemail) may require the prior express consent of recipients. New regulations of foreign exchange brokers and requirements foradvertising of residential construction projects introduced in 2016 could limit the amount of advertising in these categories.In some cases, violation of these Russian laws can lead to civil action by third parties who suffer damages, or administrativepenalties imposed by the Federal Antimonopoly Service of Russia (the “FAS”). Further amendments to legislation regulatingadvertising may 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 advertisinglaws, in particular in relation to products or services requiring certification, licensing or approval, can be ambiguous andinconsistent. The application of these laws in an unanticipated manner, or the failure of our compliance efforts, may exposeus to substantial liability as distributors of advertising and may restrict our ability to provide some of our services.There is no clarity regarding the approach Russian law and court practice will take with respect to the use of thirdparties’ trademarks in keywords for the purposes of search and contextual advertising. There is a practice of courtsrecognizing that the use of trademarks in keywords should not be considered a breach of exclusive trademark rights and thatthe operator of the advertising platform allowing the use of keywords for ad targeting should not be held liable for such use.However, inconsistent decisions among different courts and in different regions are not uncommon in Russia.44 Table of ContentsTherefore, our operations might be adversely affected depending upon the approach the Russian courts take in this respect.Other laws or interpretations of laws, including those of foreign jurisdictions, may also restrict advertising andnegatively impact our business. For example, some French courts have interpreted French trademark laws in ways that wouldlimit the ability of competitors to advertise in connection with generic keywords. Adoption of similar interpretations byRussian or other national courts may adversely affect our business. In addition, Russian law does not specifically regulatebehavioral targeting in relation to advertising, which is a standard tool widely used in the online business. Any futureinterpretation of Russian law affecting the regulation of behavioral targeting could have a negative impact on our business.Intellectual Property RegulationIn principle, the acquisition, protection and enforcement of intellectual property rights in Russia are addressed inline with international standards. In particular, literary, artistic and scientific works are subject to copyright protectionwithout any registration and enjoy legal protection simply by virtue of being created in an objective form perceivable bythird parties. Although the registration of software and databases with the Federal Service for Intellectual Property(“Rospatent”) is possible, the procedure is voluntary and is not commonly performed. We take the approach that registrationwith Rospatent of the software and databases we develop is excessive since we believe that we are adequately protected bythe existing legal framework as the holder of all copyrights and related rights to our software and databases.Mandatory registration with Rospatent is required for “hard IP” such as trademarks and patents (available in Russiafor inventions, utility models and industrial designs) in order for the rights holder to acquire exclusive rights. Trademarksregistered abroad under the Madrid Agreement and/or Madrid Protocol have the same legal protection in Russia as locallyregistered trademarks. Our main brand and branding materials for our key services have trademark protection in thejurisdictions where we operate, either through national trademarks or international registrations; however, until recently wedid not register figurative logos that we use on our websites on the basis that they are changed and upgraded from time totime and we also hold copyrights in these logos. We are currently intensifying our efforts to obtain broader trademarkprotection.Under Russian law, we have exclusive rights to trade secrets (know‑how) only if we have complied with a legalrequirement to introduce reasonable measures to maintain confidentiality of our trade secrets, which measures may beburdensome and formalistic to implement. As we rely extensively in our operations on the protection afforded to tradesecrets, we have implemented a set of measures required by Russian law in order to protect 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 to thesetrade secrets under Russian law.One of the known problems and risks in Russian business practice relates to acquiring exclusive rights to works forhire and patentable results from employees as well as third‑party contractors. By operation of Russian law, the exclusiverights to works for hire and patentable results are assigned to the employer if the intellectual property is created by anemployee during the course of the ordinary job duties (or, in the case of patents, pursuant to a specific request by theemployer). A similar rule is applicable in the context of agreements specifically providing for the creation of software.Uncertainties and disputes might arise with respect to whether exclusive rights have actually been transferred to the employeror contractor on the basis of an employment or other agreement if intellectual property has been created outside the scope ofthe employee or contractor’s employment (in the case of works for hire), or a legal entity has failed to properly document itsrelations with its own employees and subcontractors and, as a result, is unable to transfer any rights to its customer. In case ofemployment disputes, Russian courts of common jurisdiction (as opposed to arbitrazh commercial state courts) may be moreinclined to follow an overly formalistic approach and may take a pro‑employee position in the event of uncertainty in adispute of this nature.Nonetheless, under Russian law, subject to the risks outlined above, we are deemed to have acquired copyrights andrights to file patent applications with respect to works for hire and patentable results created by our employees during thecourse of their employment with us and within the scope of their job duties, and have the exclusive rights to their further useand disposal subject to compliance with the requirements of the Civil Code of Russia.45 Table of ContentsLiability of Online Service ProvidersLaws relating to the liability of online service providers for the activities of their users and other third parties arestill being developed in Russia and certain other countries in which we operate.Russian law contains provisions aimed at establishing a framework for limitation of liability of online serviceproviders. 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 andperforms no modification of the transmitted material. A hosting provider, on the other hand, may be exempt from liability inthe event it possesses no actual or constructive knowledge of the infringement and timely undertakes necessary andsufficient measures to cease infringement following receipt of written notification identifying the rights holder and thelocation of the allegedly infringing material. Substantial ambiguity still remains in Russian law, particularly because theseprovisions contain no guidance as to what would constitute “necessary and sufficient measures” in this regard (for example,whether they include a requirement to monitor re‑uploading of the same work by the same or other users) and provide noclarity on the limitation of liability with respect to other types of online service providers (such as those performing cachingor providing information location tools). In light of this, our exposure to liability will significantly depend on interpretationof these new provisions by the courts and officials.The Russian Civil Code also imposes strict liability for infringement of intellectual property rights if suchinfringement is committed in connection with business activities. It is unclear how these provisions apply to online serviceproviders.This legislation, as well any similar additional regulations, may impose new requirements on us and our operationsand lead to material legal liability, which can be difficult to foresee or limit. See “Risk Factors—We may be held liable forinformation or content displayed on, retrieved by or linked to on our websites and mobile applications, or distributed by ourusers; or we may be required to block certain content or access to our websites could be restricted; any of which could harmour reputation and business.”Regulation of Electronic PaymentsUnder the regulations governing electronic payment systems, payments with digital money fall into the sphere ofbanking activities and such payments are regarded as a special transaction entered into without the need to open an account.Such transactions, however, have to be performed by a credit organization supervised by the Central Bank of Russia. Tocomply with this law, our Yandex.Money joint venture established a non‑banking credit organization subsidiary, whichobtained the required license from the Central Bank of Russia. All necessary contractual obligations of PSYandex.Money LLC have been transferred to its non‑banking credit organization subsidiary.Mass Media RegulationRussian law requires certain parties that disseminate news and similar mass communications and information to beregistered with the appropriate Russian governmental body, Roscomnadzor, and to comply with restrictions regarding thedistributed content. The law currently permits electronic network publications (websites) to register as mass media. Asregistration under this amendment is voluntary, we elected not to register our online properties as mass media. See “RiskFactors—Because the range of the services we provide is increasing and the legal framework governing internet services ande‑commerce in our markets is evolving, we may be required to obtain additional licenses, permits or registrations or complywith other requirements, which may be costly or may limit our flexibility to run our business.”Russian law also regulates popular bloggers and requires registration of bloggers, as well as imposing obligations onthem. The applicable legislation is broadly drafted and could potentially apply to any owner of a website or webpage whichcontains publicly available information and is visited by more than 3,000 internet users daily, whether such site is ownedand/or operated by an individual or a legal entity. Since the scope of this legislation is uncertain, it is unclear whether itapplies to any of the companies of our group.Since 2016, Russian law imposes a limit on non‑Russian ownership and control, direct or indirect, of Russian massmedia of no more than 20%. Accordingly, if our core business were to be required to register as a mass media, it would have amaterial impact on the ownership structure of our business and could materially adversely affect the value of our Class Ashares. See also “Risk Factors—Existing restrictions on foreign ownership may prevent a takeover of our46 Table of Contentscompany by a non‑Russian party. If the Russian government were to apply existing limitations on foreign ownership to ourbusiness, or specifically impose limitations on foreign ownership of internet businesses in Russia, it could materiallyadversely affect our group and the value of our Class A shares.”Encryption Activity LicenseUnder Russian law, a variety of activities related to encryption require a special permit (license) granted by theFederal Security Service (the “FSS”) subject to the applicant’s continued compliance with a number of licensingrequirements, including the requirement to use only certified encryption means and equipment and to ensure timelyextension of such certification when its terms expires.Our Yandex.Money joint venture with Sberbank, uses encryption algorithms for the protection of transfersperformed by its customers and may be required to obtain additional licenses for their use. The requirements for the grant andmaintenance of licenses for the use of encryption algorithms are very broad and unclear, leaving the regulator with muchdiscretion in applying and enforcing the applicable laws. See also “Risk Factors—Because the range of the services weprovide is increasing and the legal framework governing internet services and e‑commerce in our markets is evolving, wemay be required to obtain additional licenses, permits or registrations or comply with other requirements, which may becostly or may limit our flexibility to run our business.”Strategic Companies LawIn accordance with the Strategic Companies Law, there are restrictions with respect to the acquisition of votingshares or participation interests and establishment of control by foreign legal entities and individuals, as well as states,international organizations and entities controlled by them, with respect to business entities with strategic importance. Theinternet and online advertising are not currently industries specifically covered by the Strategic Companies Law, but therehave previously been draft amendments under consideration, which, if adopted, would include certain internet companiesthat have large audiences within the scope of this law. In addition, entities holding licenses to use encryption technologiesare covered by this law. As discussed above, the Yandex.Money joint venture holds an encryption license and is thus subjectto the Strategic Companies Law.Under the provisions of the Strategic Companies Law, the direct or indirect acquisition in excess of 25% of thevoting power of a strategically important entity by a foreign state, foreign governmental organization, internationalorganization or entity controlled by a foreign government or international organization, or the acquisition of sharesrepresenting in excess of 50% of the voting power of such a company by any other foreign investor or any of its affiliatedcompanies, requires the prior approval of the Russian government. In addition, foreign investors or their group of companiesthat 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 unrelatedforeign investors controlled by a foreign state or international organization.Moreover, the acquisition of 5% or more of the shares of a strategically important company triggers a requirement tosubmit a notification to the FAS. Failure to obtain the required governmental approval prior to an acquisition would renderthe acquisition invalid. The Strategic Companies Law also applies to entirely foreign transactions entered into by foreignentities abroad (in other words, the law applies on the basis of the effects of such transactions in Russia). In the eventinvalidation of the transaction is not possible in the specific circumstances the court is entitled to deprive the foreigninvestor of its voting rights with respect to the acquired shares or participation interest.Privacy and Personal Data Protection RegulationWe are subject to Russian and foreign laws regarding privacy and the protection of our users’ personal data. Wepublish on our websites our privacy policies and practices concerning the use, processing, storage and disclosure of user data.Any failure by us to comply with our privacy policies as well as Russian or other applicable laws and regulations relating toprivacy and the protection of user data may result in proceedings against us by governmental authorities, individuals or otherthird parties, which may adversely impact our business. In addition, the adoption and interpretation of data protection laws,and their application to internet operations, are often difficult to predict, unclear and are in a constant state of developmentand although we believe that we comply with all current requirements, these laws could in the future be interpreted andapplied in a manner that is inconsistent with current practice. For instance, in May 2014 the Court of Justice of the EuropeanUnion established that an operator of a search engine can be obligated to remove from47 Table of Contentsthe list of search results links to web‑pages containing inaccurate or outdated information related to an individual. Russianpersonal data laws have been amended, granting a similar right to Russian citizens, who from January 2016 have been able toapply for the removal of search results that link to inaccurate or irrelevant information about them.Russian data protection laws provide that an individual must freely consent to the production of her/his personaldata. 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 bydigital electronic signature or evidenced 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 inappropriate circumstances prior to commencement of the account registration process indicating the user’s consent to ourcollection, use, storage and processing of personal data. Furthermore, most of our services do not require the creation of anaccount prior to their use and we collect only limited information in these circumstances. In particular, we place cookies anduse other wide‑spread technologies that assist us in improving user experience of our products and services and ultimatelybenefit both our users and advertisers to the extent that we use a certain part of this collected information for behavioraltargeting of advertising. No clear legislative guidelines have been provided addressing whether our practices are compliantwith the requirements of the data protection legislation in Russia and abroad. There is a risk that such laws may beinterpreted and applied in a manner that is not consistent with our current data protection practices. Complying with variousregulations in this area may cause us to incur additional costs or to change our business practices. Further, any failure by usto protect our users’ privacy and data may result in a decrease of user confidence in our services, and may ultimately result ina loss of users, which would adversely affect our business.The Russian legislation also regulates the “organizers of information distribution”. Organizers of informationdistribution must retain a broad range of data relating to and generated by users for a period of time, and provide such data tosecurity and investigation authorities at their request. Organizers of information distribution that use encryption whendelivering or processing electronic messages have to provide the security authorities with information necessary fordecoding the delivered or processed messages. If an organizer of information distribution fails to comply with the aboverequirements, the Russian authorities can prescribe the blocking of access to the services of such organizer of informationdistribution.Russian personal data law also requires that companies store all personal data of Russian users only in databaseslocated inside Russia. Although we have data centers located in Russia, this law could limit our flexibility in managing ouroperations globally. Failure to comply with applicable data protection legislation may lead to the restriction of access to ourservices. For example, in 2016 a Russian court ordered the blocking of access to a popular social networking website forviolation of data protection legislation.Licenses for the Provision of Communication ServicesEntities that provide certain telecommunication services for a fee are required under Russian law to obtain a“telematics” license from Roscomnadzor. In order to increase our range of services and diversify our business we obtained thetelematics licenses necessary for the provision of certain of our new services in Russia. However, we generally do not chargea fee for the online services we provide to our users and therefore, believe that we are not required to hold a telematics licensefor provision of these services. We do, however, generate revenue from ads directed to our users. As a result, it is possible thata Russian court or government agency may construe our advertising revenue as a fee and determine that we are required tohold a telematics license for such services, which would require us to apply for and comply with the terms of any suchlicense.Additionally, we may in the future offer user services for a fee, which could require us to comply with the licensingrequirements described above.Protection of Minors from Harmful InformationRussian law restricts the circulation of certain identified categories of publicly available and distributed informationthat 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 agecategories of minors must be accompanied by a relevant mark identifying the age restriction category of information.Advertising of information products must also be accompanied by a category identification48 Table of Contentsmark. Age category identification for information made available on the internet (except for the websites registered as massmedia) is voluntary.Furthermore, administrators of websites registered as mass media have been expressly relieved from theresponsibility for age category identification with respect to commentaries and messages posted by users of the websites attheir discretion.Restriction of Access to Websites Containing Illegal InformationRussian law establishes a system for the blocking of websites on the internet that make available specific categoriesof illegal information related to child pornography, encouraging suicide or drug use as well as other restricted information. Auniform register of domain names, website page locators and network addresses maintained by Roscomnadzor enablesidentification of websites on the internet. After the inclusion of a specific website or webpage in the registry at the decisionof the relevant state authority (in the event of child pornography, information related to suicides and drug use) or on the basisof a court ruling (any other restricted information), Roscomnadzor notifies the website hosting provider within 24 hours,which must, in turn, within 24 hours notify the administrator of the website in question. If following notification the websiteadministrator fails to take down the information, the hosting provider must restrict the access to such information. Providedthat the information is still accessible within 3 days after notice is given to the hosting provider, Roscomnadzor will includethe IP address of the website in the registry, which must be blocked by all Russian internet service providers andtelecommunication service operators.The legal framework related to this blacklist of websites is controversial, and the procedures established by this lawhave been heavily criticized by the general public, industry players and legal scholars, and may well be revised.Roscomnadzor issued a clarification on November 30, 2012 specifying that search engines, news aggregators and cachedinformation used in the course of their operation will not be included in the registry because they fall outside the scope of thelaw. At the same time, the regulator’s approach may change and our operations could be adversely affected by inappropriateapplication of the websites blacklist legislation.Further legislation is currently in place in Russia 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 ofestablished procedure) at the request of certain governmental authorities without prior notification. Only a subsequentpost‑blocking notification to the relevant website owner or hosting provider 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 Russian authorities ordered that access to several websites be blocked on the basis of the violationof personal data regulations. The most recent amendment to this legislation, which came into force on May 1, 2015, permitsthe permanent blocking of websites for violation of copyright and related rights. There is no clarity as to how this measurewill be applied in practice. Based on these considerations and the uncertainties in the application of these laws, we may besubject to arbitrary blocking measures, injunctions or court decisions that may require us to block or remove content, whichmay adversely affect our services and operations. See “Risk Factors—We may be held liable for information or contentdisplayed on, retrieved by or linked to on our websites and mobile applications, or distributed by our users; or we may berequired to block certain content or access to our websites could be restricted; any of which could harm our reputation andbusiness.”Securities RegulationOur Class A ordinary shares are currently listed on the NASDAQ Global Select Market and in June 2014 wereadmitted to trading on Moscow Exchange; therefore we are now required to comply with specific Russian regulationconcerning information disclosure, insider trading and certain other requirements as may be applied to foreign issuers inRussia.Antimonopoly RegulationRussian law grants to FAS as the antimonopoly regulator wide powers and authorities to maintain competition inthe market, including approval or monitoring of mergers and acquisitions, establishment of rules of conduct for marketplayers occupying dominant positions, prosecution of any wrongful abuse of a dominant position, and the prevention ofcartels and other anti‑competitive agreements or practices. The regulator may impose significant49 Table of Contentsadministrative fines (up to 15% of the annual revenue derived in the market where the violation occurred) on market playersthat abuse their dominant position or otherwise restrict competition, and is entitled to challenge contracts, agreements ortransactions that are in violation of the antimonopoly regulation. We have a substantial market share in the onlineadvertising market; however, we are not recognized by the regulator as occupying a dominant position in any market.However, we understand that the regulator from time to time focuses on internet services and could in the future recognizeonline advertising as a separate market, and could identify dominant players and impose conduct limitations and otherrestrictions.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 asingle package for pre installation by device manufacturers, as well as employing exclusive dealing and other restrictivepractices to increase its search market share and ensure the presence of its other services on Android operated devices. InSeptember 2015, FAS declared that Google had breached Russian antitrust laws. Google was ordered by FAS to refrain fromanti competitive behavior and to take action to restore competition and allow third party services such as Yandex search tobe pre-installed on Android devices. Google appealed FAS’s decision to the Arbitrazh Court of Moscow and then to theNinth Arbitrazh Court of Appeal: both appeals were unsuccessful for Google. Google is further appealing the FAS’s decision. Taxation RegulationTaxation of legal entities and individuals in Russia is regulated primarily by the Tax Code of the RussianFederation. The scope and application of the Tax Code is elaborated by numerous regulations and clarifications from theMinistry of Finance of Russia and by the Federal Tax Service, which enforces the tax laws. Russian tax law and proceduresare still not fully developed and local divisions of the Federal Tax Service have considerable autonomy in tax lawinterpretation and often interpret tax rules inconsistently. Also, there is extensive court practice on the construction of theCode’s provisions, which can sometimes be unpredictable or even contradictory. Both the substantive provisions of theRussian tax law and the interpretation and application of those provisions by the Russian tax authorities and by Russiancourts may be subject to rapid and unpredictable change. See “Risk Factors—Changes in the tax systems of Russia and othercountries in which we operate, as well as unpredictable or unforeseen application of existing rules, may materially adverselyaffect our business, financial condition and results of operations.”Applicability of Other RegulationsBecause our services are accessible to Russian‑language speakers worldwide and are becoming increasinglyavailable to other users globally, certain foreign jurisdictions, including those in which we have not established a localoffice, employees or infrastructure, may require us to comply with their local laws. 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 inconjunction with the “Selected Consolidated Financial Information” section of this Annual Report and our consolidatedfinancial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, thisdiscussion contains forward‑looking statements based on our current expectations that involve risks, uncertainties andassumptions. 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 andelsewhere in this Annual Report.50 Table of ContentsOverviewWe are one of the largest European internet companies and the leading search provider in Russia. Our principalconstituencies are:·Users. We provide our users with advanced search capabilities and an extensive range of online services thatenable them to find relevant, objective information quickly and easily, as well as communicate, connect andshop over the internet.·Advertisers. Our online advertising platform allows advertisers to reach a large audience of users in theirmarkets and deliver cost‑effective online advertising. With Yandex.Direct, our auction‑based advertisingplatform, advertisers can promote their products and services through relevant ads targeted to a particular userquery, the content of a website or webpage being viewed, or user behavior or characteristics. OurYandex.Market service allows merchants to advertise their goods and services either using a traditional CPCadvertising model or using a CPA model that charges advertisers only when it delivers a paying customer.·Yandex ad network partners. We have relationships with a large number of third‑party websites, which we referto as the Yandex ad network. In addition to serving ads on our own websites, we also serve ads on our networkpartners’ websites and share the fees generated by these ads with our partners, providing an important revenuestream for them.Our yandex.ru website first began generating revenue in 1998. We became profitable in 2003 and have beenprofitable every year since then.Advertising revenues accounted for 98.8%, 97.4% and 95.6% of our total revenues in 2014, 2015 and 2016,respectively. Our advertising revenues consist of fees charged to advertisers for serving online ads on our websites and thoseof our partners in the Yandex ad network. . We place the significant majority of our performance‑based ads throughYandex.Direct and the remainder through Yandex.Market, our e‑commerce gateway service. We sell approximately half ofour performance-based ads on a prepaid basis. Our Yandex.Direct advertisers pay us on a cost‑per‑click (CPC) basis, whichmeans that we recognize revenue only when a user clicks on one of our advertisers’ ads. Our brand advertising is generallysold on a cost‑per‑thousand (CPM) impressions basis. For these ads, we recognize as revenue the fees charged to advertiserswhen their ads are displayed. Our Yandex.Market service is priced on a CPC basis, similar to Yandex.Direct. Yandex.Marketalso operates on a take-rate-based model. In September 2016 we started to actively switch certain goods’ categories in severalregions to the take-rate-based model as we consider it beneficial to both merchants and consumers.We recognize our advertising revenues net of value added tax (currently 18.0% in Russia) and sales commissionsand bonuses. Although the major part of our revenues is generated by direct sales to our advertisers, a significant portion ofour advertising sales are sold through media agencies. We recognize revenues from those advertising sales net of thecommissions and bonuses paid to these agencies.We benefit from a large and diverse base of advertisers. Our advertisers include individuals and small, medium andlarge enterprises across Russia and the other countries in which we operate, as well as large multinational corporations. Noindividual advertiser accounted for more than 1.2% of our total revenues in 2014, 2015 or 2016. On a geographical basis, wegenerated more than 91% of our total revenues in each of 2014, 2015 and 2016 from advertisers and other customers withbilling addresses 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. Forperformance‑based ads served on the websites of our partners in the Yandex ad network, we recognize as revenue the feespaid to us by advertisers each time a user clicks on one of their performance‑based ads or, for those advertisers paying forbrand ads on a CPM basis, as their ads are displayed. We pay our partners in the Yandex ad network fees for serving ouradvertisers’ ads on their websites. These fees are primarily based on revenue‑sharing arrangements. As such, the fees paid toour partners in the 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 our partners in the Yandex ad network as traffic acquisition costs, a component ofcost of revenues. Since we launched our Yandex ad network in 2006, these costs annually have, in aggregate, amounted tomore than one‑half of the revenues we have earned from serving ads on the Yandex ad network51 Table of Contentsand we expect them to continue to do so in the foreseeable future. Yandex ad network partners do not pay us any feesassociated 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 terminatedby either party at will with no termination fees. Agreements with larger partners in the Yandex ad network are individuallynegotiated and vary in duration but typically renew automatically. Our agreement with Mail.ru Group, for which we beganproviding paid search in July 2013, is subject to mutual, material early termination penalties under specified circumstances.In 2014, 2015, and 2016, none of our ad network partners accounted for more than 10% of our total revenues. In 2016,Mail.ru Group 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 revenuesinclude 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 adnetwork;·the relevance, objectivity and quality of our search results and the quality of our other services and of theYandex ad network;·our search market share, including on mobile devices, with a larger market share allowing us to better monetizeour users’ search activity and attract and retain advertisers, as well as partners in our Yandex ad network;·the demand for online advertising in Russia and the other markets in which we operate, particularly amongsmall and medium‑size businesses;·our ability to effectively monetize traffic generated by our websites and those of the Yandex ad networkpartners, including through improvements to our advanced auction and advertising placement system, whilemaintaining an attractive return on investment for our advertisers; and·our ability to effectively monetize mobile search where the number of search queries is growing more quicklythan on desktops.SegmentsPrior to 2014, we operated as a single operating segment. During 2015‑2016, we revised our organizationalstructure, separating several focus areas into product lines and geographies. As a result, our businesses are now organized inthe following operating segments:·Search and Portal, which includes all services offered in Russia, Ukraine, Belarus and Kazakhstan, other thanthose described below;·E‑commerce (including the Yandex.Market service);·Taxi (including the Yandex.Taxi service);·Classifieds (including Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel); and·Experimental businesses, where we aim to prove new business models. These include:·Media Services (including KinoPoisk, Yandex.Music, Yandex.Afisha and Yandex.TV program);·Yandex Data Factory;52 Table of Contents·Discovery Services (including Yandex Zen and Yandex Launcher); and·Search and Portal in Turkey.Key Trends Impacting Our Results of OperationsAlthough the Russian economy stabilized to some extent in 2016, our results of operations have been impacted inrecent periods by the macroeconomic environment in Russia, which has negatively affected our rate of revenue growth andour operating margins. The depreciation of the Russian ruble in 2014-2015 increased the ruble amount of our U.S.dollar‑denominated expenses, including the rent on our Moscow headquarters and the acquisition of servers and networkingequipment, and has generally increased the rate of inflation in Russia. In addition to the impact of the currentmacroeconomic environment, the trends described below are key drivers of our results of operations.Our business and revenues have grown rapidly since inception, and the effectiveness of performance‑basedadvertising as a medium has contributed to the rapid growth of our business. Advertising spending continues to shift fromoffline to online as the internet evolves, and we expect that our business will continue to grow. However, we expect that ourrevenue growth rate will continue to decline over time as a result of a number of factors, including challenges in maintainingour growth rate as our revenues increase to higher levels, increasing competition, particularly on mobile devices, changes inthe nature of queries, the evolution of the overall online advertising market and the declining rate of growth in internet usersin Russia as overall internet penetration increases.Our operating margins, representing our income from operations as a percentage of revenues, may fluctuate in thefuture depending on the percentage of our advertising revenues that we derive from the Yandex ad network compared withour own websites. The operating margin we realize on revenues generated from the websites of our partners in the Yandex adnetwork is significantly lower than the operating margin generated from our own websites. The percentage of our advertisingrevenues derived from the Yandex ad network increased from 23.7% in 2014 to 26.0% in 2015 and to 27.1% in 2016 andcontributed to the overall decline in our operating margin. We currently expect that the portion of our advertising revenuesderived from the Yandex ad network will remain flat in 2017. The margin we earn, on average, on revenue generated from theYandex ad network could decrease in the future if we are required to share with our partners a greater percentage of theadvertising fees generated through their websites.Growth in mobile search may also have an impact on our operating margins. The number of search queries frommobile devices, including smartphones and tablets is growing more quickly than desktop queries. Queries from mobiledevices still, however, represented only 27.9% of our total search queries and 23.1% of our search revenues for the yearended December 31, 2016. To date, growth in mobile usage has not had a material impact on our pricing, revenues oroperating margins; however, we have seen some evidence that this growth may exert modest downward pressure on ourrevenues and operating margins in the future.Recent and future capital expenditures may also put pressure on our operating margins. Our capital expendituresincreased from RUB 9,679 million in 2014 to RUB 13,045 million in 2015, and decreased to RUB 9,625 million in 2016. Wespent approximately 71% of our total capital expenditures in 2016 on servers and data center expansion to support growth inour current operations. Our depreciation and amortization expense increased as a percentage of revenues from 8.8% in 2014to 13.0% in 2015, before decreasing slightly to 12.7% in 2016. We currently expect our capital expenditures in 2017 toremain stable as a percentage of revenues in comparison to 2016, as in 2017 our investment in server capacities will grow,partly offset by a decrease in data center construction costs. A significant investment in 2016 was aimed at the constructionof a new datacenter in Vladimir, Russia. As our capital expenditures are to a significant extent denominated in U.S. dollarsand euro, any depreciation of the Russian ruble is likely to result in an increase in capital expenditures and depreciation andamortization both in absolute terms and as a percentage of revenues.To support further brand enhancement and respond to competitive pressures, we spent larger amounts in 2015 and2016 on advertising and marketing than we have spent historically, both in absolute terms and as a percentage of revenue. Asignificant portion of our advertising and marketing expense in 2015 and 2016 relates to our efforts to promote ourYandex.Taxi, Yandex.Market and Yandex Browser and to support our brand in Russia and the other markets in which weoperate. In 2016 Yandex.Taxi launched its service in 36 new cities and as of December 31, 2016 was operating in 46 citiesacross Russia, Georgia, Armenia, Kazakhstan, Belarus and Ukraine.We expect to continue to invest significantly inadvertising and marketing. We currently expect our advertising and marketing costs in 2017 to53 Table of Contentsincrease as a percentage of revenues in comparison to 2016 due to continuing investment to promote of Yandex.Taxi,Yandex Browser, Auto.ru and Yandex.Market. This spending could negatively impact our operating margin if it does notdrive revenue growth in the manner that we anticipate.In Turkey we provide users in this country with Yandex’s major products such as search, mail, maps, traffic, weatherand browser. The main focus of our Turkish office is providing advertising services to local customers and promoting ourcore services, mainly search and geo informational services.Our revenues are impacted by seasonal fluctuations in internet usage and in advertising expenditures. Internet usageand advertising expenditures generally slow down during the months when there are extended Russian public holidays andvacations, and are significantly higher in the fourth quarter of each year. Moreover, expenditures by advertisers tend to becyclical, 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 the RussianFederal State Statistics Service, Rosstat, the consumer price index in Russia increased by 11.4% and 12.9% in 2014 and2015, respectively, and by 5.4% in 2016. The lower annual rate of inflation in 2016 reflected the appreciation of the Russianruble. We can provide no assurance that the annual rate of inflation will not increase in 2017. Higher rates of inflation mayaccelerate increases in our operating expenses and capital expenditures and reduce the value and purchasing power of ourruble‑denominated assets, such as cash, cash equivalents and term deposits.Changes in the value of the U.S. dollar compared with the Russian ruble can also negatively affect our results ofoperations. See “Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Risk.”Recent AcquisitionsKitLocateIn March 2014, we completed the acquisition of a 100% ownership interest in KitLocate Ltd., a developer of anenergy‑efficient geolocation technology for mobile devices, for cash consideration of up to $10.2 million, including$4.0 million paid in full upon closing of the deal, up to $2.3 million of earn‑out payments on the achievement of certaindistribution milestones, and $3.9 million paid to an escrow account, the release of which was subject to KitLocate’s founderscontinued employment. We recorded the milestones-related earn‑out payments at the fair value of $1.5 million as part ofpurchase consideration. We have not recorded the contingent payments related to the continued employment as purchaseprice consideration but instead recorded them as compensation expense as the former KitLocate’s shareholders completedtheir requisite service periods. We fully settled our obligations by paying $1.9 million in milestones-related earn‑outpayments and releasing the escrowed amount in full in July 2015.Auto.ruIn August 2014, we completed the acquisition of the Auto.ru group (“Auto.ru”), one of the leading online autoclassifieds businesses in Russia, for cash consideration of $178.4 million paid in full upon closing of the deal, including$14.0 million paid into an escrow account of which half was released to the sellers in February 2016. The remaining amountin escrow will be paid to the sellers on the date falling 43 months after the completion date, assuming no warranty claims.ADFOXIn September 2014, we bought the assets and assumed the liabilities of ADFOX LLC (“ADFOX”), which operates anadvertising technology platform that provides services for planning, managing and analyzing advertising campaigns on theinternet. We paid cash consideration of $11.3 million, including $8.5 million paid upon closing of the deal, $1.4 millionpaid on the first anniversary of the closing in the fourth quarter of 2015, and $1.4 million paid in October 2016.54 Table of ContentsOther Acquisitions in 2014During the year ended December 31, 2014, we completed other acquisitions and purchases of intangible assets fortotal consideration of approximately RUB 347 million.RosTaxiIn January 2015, we bought the assets and assumed the liabilities of the RosTaxi (“RosTaxi”) business, whichoperates a taxi fleet management application. The agreement provides for cash consideration of up to RUB 500 million,including a deferred payment of up to RUB 380 million, subject to successful technical integration and client base transition,and contingent consideration of up to RUB 500 million payable in our ordinary shares on the third anniversary of theclosing, depending on the number of qualifying taxi trips. During 2015, 2016 and for the period of January and February2017, deferred payments in the amount of RUB 50 million, RUB 65 million and RUB 195 million, respectively, were paid.AgnitumIn December 2015, we completed the acquisition of assets and assumption of liabilities of Agnitum Ltd(“Agnitum”), an antivirus protection developer, for cash consideration of RUB 120 million and a deferred payment of up toRUB 80 million including additional payments subject to the attainment of certain implementation and integrationmilestones of up to RUB 60 million payable in cash and up to RUB 20 million to be granted in restricted share units. Adeferred payment in the amount of RUB 60 million was paid in cash in 2016.We did not complete any business combinations in 2016.A further description of the acquisitions and their accounting implications can be found in Note 4 of our auditedconsolidated financial statements included elsewhere in this Annual Report.Results of OperationsThe following table presents our historical consolidated results of operations as a percentage of revenues for theperiods indicated: Year ended December 31, 2014 2015 2016 Revenues 100.0% 100.0% 100.0%Operating costs and expenses: Cost of revenues 28.2 28.1 26.0 Product development 17.5 22.5 20.8 Sales, general and administrative 15.3 19.4 23.6 Depreciation and amortization 8.8 13.0 12.7 Goodwill impairment 0.0 1.0 0.0 Total operating costs and expenses 69.8 84.0 83.1 Income from operations 30.2 16.0 16.9 Interest income, net 1.7 2.9 2.2 Other income/(loss), net 12.4 3.8 (4.5) Income before income taxes 44.3 22.7 14.6 Provision for income taxes 10.8 6.5 5.7 Net income 33.5% 16.2% 8.9%Our consolidated operating margin decreased from 30.2% in 2014 to 16.0% in 2015 and slightly increased to 16.9%in 2016. The decrease in 2015 compared with 2014 was primarily due to increases in depreciation and amortization as apercentage of our total revenues, reflecting investments in servers and data centers made in 2014 and 2015, and to increasesin our rent expenses attributable to further appreciation of the U.S. dollar in 2015 compared to 2014, as well as to salaryincreases we implemented in early 2015. The slight increase in 2016 compared with 2015 was primarily due to a decrease intraffic acquisition costs paid to our partners in the Yandex ad network as a percentage of our total revenues as well as to adecrease in rent expenses attributable to our Moscow headquarters, which is U.S.55 Table of Contentsdollar‑denominated, reflecting the Russian ruble appreciation, as well as absence of goodwill impairment recorded in 2016:partly offset by an increase in marketing and advertising expenses as a percentage of our total revenues, reflecting our effortsto promote our Yandex.Taxi, Yandex.Market and Yandex Browser and to support our brand in Russia and the other marketsin which we operate.The following table presents our historical results of operations by reportable segment for the periods indicated: Year ended December 31, 2014 2015 2016 (in millions of RUB) Revenues Search and Portal 47,920 55,905 69,256 E‑commerce 2,889 3,400 4,718 Classifieds 539 894 1,304 Taxi 327 984 2,313 Experiments 337 441 830 Eliminations (1,245) (1,832) (2,496) Total revenues 50,767 59,792 75,925 Operating costs and expenses Search and Portal 31,435 40,706 49,236 E‑commerce 1,053 1,776 3,355 Classifieds 277 764 1,378 Taxi 110 848 4,438 Experiments 2,327 3,850 3,012 Eliminations (1,245) (1,832) (2,496) Total operating costs and expenses 33,957 46,112 58,923 Adjusted operating income Search and Portal 16,485 15,199 20,020 E‑commerce 1,836 1,624 1,363 Classifieds 262 130 (74) Taxi 217 136 (2,125) Experiments (1,990) (3,409) (2,182) Eliminations — — — Total adjusted operating income 16,810 13,680 17,002 Eliminations represent the elimination of transaction results between the reportable segments, primarily related toadvertising. Operating costs and expenses of reportable segments exclude share‑based compensation expense, goodwillimpairment, amortization of acquisition‑related intangible assets and compensation expense related to contingentconsideration.56 Table of ContentsRevenuesThe following table presents our consolidated revenues, by source, in absolute terms and as a percentage of totalrevenues for the periods presented: Year ended December 31, 2014 2015 2016 RUB % of Revenues RUB % of Revenues RUB % of Revenues (in millions of RUB, except percentages) Advertising revenues(1): Yandex websites 38,262 75.4% 43,099 72.1%52,888 69.7%Yandex ad network websites 11,885 23.4 15,111 25.3 19,691 25.9 Total advertising revenues 50,147 98.8 58,210 97.4 72,579 95.6 Other revenues 620 1.2 1,582 2.6 3,346 4.4 Total revenues 50,767 100.0% 59,792 100.0%75,925 100.0%(1)We record revenue net of VAT, sales agency commissions and bonuses and discounts. Because it is impractical to trackcommissions, bonuses and discounts for advertising revenues generated on our own websites and on those of ourpartners in the Yandex ad network separately, we have allocated commissions, bonuses and discounts between our ownwebsites and those of our partners in the Yandex ad network proportionally to their respective revenue contributions.Advertising revenues. Total advertising revenues increased by RUB 14,369 million, or 24.7%, from 2015 to 2016and by RUB 8,063 million, or 16.1%, from 2014 to 2015. Advertising revenue growth over the periods under review resultedprimarily from growth in sales of performance‑based online ads, driven by an increase in the number of paid clicks andincrease in average cost‑per‑click paid by our advertisers. We do not expect the rate of advertising revenue growth in 2017 tobe higher than in 2016.Paid clicks on our own websites together with those of our Yandex ad network partners increased 14% from 2015 to2016 and 12% from 2014 to 2015. The average cost‑per‑click on our own websites together with those of our partners in theYandex ad network increased 10% from 2015 to 2016 and 5% from 2014 to 2015.During the periods under review, the year‑over‑year rates of change in paid clicks and average cost‑per‑click on aquarterly basis were as follows: Year-over-year Year-over-year growth in paid growth in Quarter clicks, % cost-per-click, % First Quarter 2014 49 (5) Second Quarter 2014 36 2 Third Quarter 2014 19 8 Fourth Quarter 2014 18 3 First Quarter 2015 12 2 Second Quarter 2015 12 1 Third Quarter 2015 15 3 Fourth Quarter 2015 10 12 First Quarter 2016 18 12 Second Quarter 2016 13 14 Third Quarter 2016 12 10 Fourth Quarter 2016 12 8 The rate of change in paid clicks and average cost‑per‑click, and their correlation with the rate of increase in ourrevenues, may fluctuate from period to period based on such factors as seasonality, advertiser competition for keywords, ourability to launch enhanced advertising products that seek to deliver increasingly targeted ads, the fees advertisers are willingto pay based on how they manage their advertising costs, and general economic conditions.57 Table of ContentsOther revenues. Other revenues principally represent commissions for providing e-hailing services related to ourYandex.Taxi service and ADFOX serving fees. Other revenues more than doubled in each of the periods under review due tothe development of paid non‑advertising services, particularly, our Yandex.Taxi service.Revenues by reportable segment. Our revenues attributable to the Search and Portal segment increased by RUB13,351 million, or 23.9%, from 2015 to 2016 and by RUB 7,985 million, or 16.7%, from 2014 to 2015. The growth in thissegment’s revenues is in line with the growth in our overall advertising revenues. Search and Portal revenues accounted forapproximately 91.2% of total revenues in 2016, compared with 93.5% in 2015 and 94.4% in 2014.Our revenues attributable to the E‑commerce segment increased by RUB 1,318 million, or 38.8%, from 2015 to2016 and by RUB 511 million, or 17.7%, from 2014 to 2015. E‑commerce revenues accounted for approximately 6.2% oftotal revenues in 2016, compared with 5.7% in 2015 and 2014. The increase of this segment’s share of total revenues in 2016compared with 2015 and 2014 is primarily due to our increased marketing spend in E-Commerce in 2016.Our revenues attributable to the Classifieds segment increased by RUB 410 million, or 45.9%, from 2015 to 2016and by RUB 355 million, or 65.9%, from 2014 to 2015. Classifieds revenues accounted for approximately 1.7% of totalrevenues in 2016, compared with 1.5% in 2015 and 1.1% in 2014. The increase of this segment’s share of total revenues in2016 compared to 2015 is primarily due to our increased marketing spend in Classifieds in 2016..Our revenues attributable to the Taxi segment increased by RUB 1,329 million, or 135.1%, from 2015 to 2016 andby RUB 657 million, or 200.9%, from 2014 to 2015. Taxi revenues accounted for approximately 3.0% of total revenues in2016, compared with 1.6% in 2015 and 0.6% in 2014. The increase of this segment’s share of total revenues in 2016compared with 2015 is primarily due to increased marketing spend and organic growth in the business.Our revenues attributable to the Experiments category increased by RUB 389 million, or 88.2%, from 2015 to 2016and by RUB 104 million, or 30.9%, from 2014 to 2015. Experiments revenues were primarily related to Media Services andincreased to approximately 1.1% of total revenues in 2016, compared with 0.7% in 2014 and 2015.Operating Costs and ExpensesOur operating costs and expenses consist of cost of revenues; product development expenses; sales, general andadministrative expenses; depreciation and amortization expense; and goodwill impairment. In addition to the reasonsdiscussed below with respect to each category, we generally expect our total operating costs and expenses to increase inabsolute 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 theamounts paid to our partners in the Yandex ad network for serving our online ads on their websites and to our partners whodistribute our products or otherwise direct search queries to our websites. These amounts are primarily based onrevenue‑sharing arrangements. Some of our distribution partners are compensated on the basis of the number of installationsof Yandex browser or search bars.The agreements with our distribution partners provide for payment of fees to them on a non‑refundable basisfollowing the period in which the distribution fees are earned. We do not have a standard term or termination provision thatapplies to agreements with our distribution partners. Our largest distribution partner since 2012, Opera, accounted inaggregate for 26% of our distribution costs in 2016, and 24% in 2014 and 2015. The Opera agreement also provides for a12‑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 relatedpersonnel costs, rent, utilities and telecommunications bandwidth costs, as well as content acquisition costs.58 Table of ContentsThe following table presents the primary components of our cost of revenues in absolute terms and as a percentageof revenues for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Traffic acquisition costs: Traffic acquisition costs related to the Yandex ad network 7,520 8,981 11,015 Traffic acquisition costs related to distribution partners 3,556 3,760 3,935 Total traffic acquisition costs 11,076 12,741 14,950 as a percentage of revenues 21.8% 21.3% 19.7%Other cost of revenues 3,260 4,069 4,804 as a percentage of revenues 6.4% 6.8% 6.3%Total cost of revenues 14,336 16,810 19,754 as a percentage of revenues 28.2% 28.1% 26.0%Cost of revenues increased by RUB 2,944 million, or 17.5%, from 2015 to 2016, primarily due to a RUB2,209 million increase in traffic acquisition costs, and by RUB 2,474 million, or 17.3%, from 2014 to 2015, primarily due toan increase of RUB 1,665 million in traffic acquisition costs. The majority of our traffic acquisition costs relate to the Yandexad network, with a smaller portion relating to distribution relationships. Traffic acquisition costs relating to the Yandex adnetwork increased by RUB 2,034 million from 2015 to 2016 and by RUB 1,461 million from 2014 to 2015, representing ourYandex ad network partners’ share in the increased amount of Yandex ad network revenue for the period, which increased byRUB 4,580 million from 2015 to 2016 and by 3,226 milion from 2014 to 2015. Our network partner traffic acquisition costsas a percentage of network partner revenues decreased to 55.9% in 2016 compared with 59.4% in 2015 and 63.3% in 2014.In addition, the amounts paid to our distribution partners increased by RUB 175 million from 2015 to 2016 and by RUB204 million from 2014 to 2015 due to growth in our existing distribution relationships, as well as the additions of newdistribution partners. As a percentage of total revenues, traffic acquisition costs decreased from 21.8% in 2014 to 21.3% in2015 and to 19.7% in 2016, as a result of changes in the partner mix.Other cost of revenues increased by RUB 735 million, or 18.1%, from 2015 to 2016, primarily due to an increase ofRUB 507 million in content acquisition and costs for outsourced services, RUB 116 million in personnel costs other thanshare‑based compensation expense, RUB 87 million of rent and utilities costs related mainly to our datacenters and RUB25 million in additional share‑based compensation expense.Other cost of revenues increased by RUB 809 million, or 24.8%, from 2014 to 2015, primarily due to an increase ofRUB 301 million in content acquisition and costs for outsourced services, RUB 252 million of rent and utilities costs relatedmainly to our Moscow premises, RUB 189 million in personnel costs other than share-based compensation expense and RUB67 million in additional share-based compensation expense.The slower increase in personnel costs in 2015 and 2016 compared to prior years is primarily a result of a decrease inour headcount in 2015, offset by a slight increase in 2016, that is allocated to cost of revenues, which decreased from 461 asof December 31, 2014 to 418 as of December 31, 2015, but then increased to 467 closer to the end of the year 2016.We anticipate that cost of revenues will continue to increase in absolute terms primarily as a result of increases intraffic acquisition, content and data center costs, but will remain flat as a percentage of revenues in the near term. The primarydrivers of increases in our future traffic acquisition costs are the increase of revenues derived from the websites of our partnersin the Yandex ad network, as well as the extent to which we use distribution partners to direct search queries to our website,partly offset by the change in the mix of Yandex ad network partners to partners with more favorable terms. In addition, ourtraffic acquisition costs as a percentage of advertising revenues may fluctuate in the future based on whether we aresuccessful in negotiating more Yandex ad network and distribution arrangements that provide for lower revenue‑sharingobligations or, alternatively, in less favorable revenue‑sharing arrangements as result of increased competition for thesearrangements with existing and potential new partners.Product development. Product development expenses consist primarily of personnel costs incurred for thedevelopment, enhancement and maintenance of our search engine and other Yandex services and technology platforms.59 Table of ContentsWe also include rent and utilities attributable to office space occupied by development staff in product developmentexpenses. 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 revenuesfor the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Product development expenses 8,842 13,421 15,832 as a percentage of revenues 17.5% 22.5% 20.8%Product development expenses increased by RUB 2,411 million, or 18.0%, from 2015 to 2016, and by RUB4,579 million, or 51.8%, from 2014 to 2015. These increases were primarily due to increases in salaries in 2016 and 2015, aswell as increases in share-based compensation expense and office rental costs for our Moscow headquarters, which are U.S.dollar denominated. Development personnel headcount decreased from 3,329 as of December 31, 2014 to 3,286 as ofDecember 31, 2015, and increased to 3,709 as of December 31, 2016. As a percentage of revenues, product developmentexpenses increased from 2014 to 2015, but decreased by 1.7% from 2015 to 2016 primarily reflecting the appreciation of theRussian ruble in 2016 which resulted in slower growth in allocable Moscow office rent and utilities which are U.S. dollardenominated.We anticipate that product development expenses will increase in absolute terms but will not change materially as apercentage of revenues in 2017.Sales, general and administrative. Sales, general and administrative expenses consist of compensation and officerent expenses for personnel engaged in customer service, sales, sales support, finance, human resources, facilities, informationtechnology and legal functions; fees for professional services; and advertising and marketing expenditures.The following table presents our sales, general and administrative expenses in absolute terms and as a percentage ofrevenues for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Sales, general and administrative expenses 7,782 11,601 17,885 as a percentage of revenues 15.3% 19.4% 23.6%Sales, general and administrative expenses increased by RUB 6,284 million, or 54.2%, from 2015 to 2016 and byRUB 3,819 million, or 49.1%, from 2014 to 2015. The increase in 2016 compared to 2015 was primarily due to increases inadvertising and marketing expenses, mainly in Russia, by RUB 4,394 million. Personnel expenses grew RUB 933 million in2016 compared to 2015 and RUB 546 million in 2015 compared to 2014. The increase in personnel expenses in the laterperiod resulted from an increase in sales, general and administrative headcount from 1,759 as of December 31, 2015 to 2,095as of December 31, 2016, compared to 1,826 as of December 31, 2014. There was a slight decrease in allocable office rent andutilities of RUB 25 million in 2016 compared to 2015 due to the appreciation of the Russian ruble, compared with anincrease of RUB 633 million in allocable office rent and utilities in 2015 compared to 2014.Additional factors contributing to the overall increase from 2015 to 2016 were an increase of RUB 360 million ofcertain allowances we provided for in 2016 compared to 2015, RUB 301 million in share‑based compensation expense, RUB137 million in business travel expenses and RUB 131 million in recruiting and training services, as well as RUB 104 millionin bank commission expenses related to Yandex.Money and other payment systems, partly offset by a RUB 51 milliondecrease in professional and other outsourced services.Additional factors contributing to the overall increase from 2014 to 2015 were RUB 381 million of certainallowances we provided for in 2015, an increase of RUB 361 million in share‑based compensation expense, RUB 340 millionin professional services, RUB 155 million in other outsourced services, RUB 101 million in bank60 Table of Contentscommission expenses related to Yandex.Money and other payment systems, and RUB 107 million in provision for doubtfulaccounts.We anticipate that our sales, general and administrative expenses in 2017 will continue to increase both in absoluteterms and as a percentage of revenues in comparison to 2016, as we continue to invest in the promotion of our products andservices, mainly related to Yandex.Taxi.Depreciation and amortization. Depreciation and amortization expense relates to the depreciation of our propertyand equipment, mainly servers and networking equipment, leasehold improvements, data center equipment and officefurniture, and the amortization of our intangible assets with definite lives.The following table presents our depreciation and amortization expense in absolute terms and as a percentage ofrevenues for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Depreciation and amortization expense 4,484 7,791 9,607 as a percentage of revenues 8.8% 13.0% 12.7%Depreciation and amortization expense increased by RUB 1,816 million, or 23.3%, from 2015 to 2016 and by RUB3,307 million, or 73.8%, from 2014 to 2015. The increases in absolute terms for 2016 as compared to 2015 and for 2015 ascompared to 2014 were primarily due to RUB 1,465 million and RUB 2,506 million increases, respectively, in depreciationexpense related to server and network equipment and infrastructure systems, RUB 372 million and RUB 330 millionincreases, respectively, in amortization expense related to technologies and licenses not related to business acquisitions. In2015 compared to 2014, the increase in absolute terms was also attributable to a RUB 260 million increase in amortizationexpense related to acquisition-related intangible assets and RUB 167 million related to buildings. The increases indepreciation and amortization expense in 2015 and 2016 were the result of the material depreciation of the Russian ruble inprior years as our capital expenditures are mostly U.S. dollar denominated, and the acquisitions of new businesses, includingAuto.ru in August 2014 and RosTaxi in January 2015. The growth in depreciation and amortization expense decelerated in2016 compared to 2015 due to appreciation of the Russian ruble in 2016.We anticipate that depreciation and amortization expense will increase in absolute terms as we continue to invest inour technology infrastructure and in business acquisitions, but will remain flat as a percentage of revenues in the near term.Any depreciation of the Russian ruble may also result in a material increase in our capital expenditures and respectivedepreciation and amortization.Share‑based compensation. In our consolidated statements of income, share‑based compensation expense isrecorded in the same functional area as the expense for the recipient’s cash compensation. As a result, share‑basedcompensation expense is allocated among our cost of revenues, product development expenses and sales, general andadministrative expenses.The following table presents our aggregate share‑based compensation expense in absolute terms and as a percentageof revenues for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Share‑based compensation expense 1,210 2,718 3,422 Share-based compensation expense as a percentage of revenues 2.4% 4.5% 4.5%Share‑based compensation expense increased by RUB 704 million, or 25.9%, from 2015 to 2016, because of newequity‑based awards granted in 2015 and 2016.61 Table of ContentsShare‑based compensation expense increased by RUB 1,508 million, or 124.6%, from 2014 to 2015, primarilybecause of new equity‑based awards granted in 2014 and 2015 and material depreciation of the Russian ruble, as share‑basedcompensation expense is denominated in U.S. dollars.The share‑based compensation expense for 2015 and 2016 includes RUB 192 million and RUB 260 million,respectively, related to Business Unit Equity Awards as described in note 15 to our consolidated financial statements.We anticipate that share‑based compensation expense will increase in absolute terms in the near term because ofnew equity‑based awards, but will decrease as a percentage of revenues.Goodwill impairment. The goodwill impairment recorded in 2015 of RUB 576 million relates to KinoPoisk and wasa result of our annual goodwill impairment test. The impairment was a result of a combination of factors, including adversechanges in the business climate in Russia subsequent to the acquisition, and higher than expected competition in theRussian online media services sector and the resulting decrease in the projected operating results. No further goodwillimpairment was recorded in 2016.Operating costs and expenses by reportable segments. Our operating costs and expenses attributable to the Searchand Portal segment increased by RUB 8,531 million, or 21.0%, from 2015 to 2016 and by RUB 9,271 million, or 29.5%, from2014 to 2015. These increases were primarily due to increases in traffic acquisition costs as well as personnel expenses anddepreciation and amortization expense.Our operating costs and expenses attributable to the E‑commerce segment increased by RUB 1,579 million, or88.9%, from 2015 to 2016 and by RUB 723 million, or 68.7%, from 2014 to 2015. These increases were primarily due toincreases in personnel expenses and advertising and marketing expenses.Our operating costs and expenses attributable to the Classifieds segment increased by RUB 614 million, or 80.4%,from 2015 to 2016 and by RUB 487 million, or 175.8%, from 2014 to 2015. These increases were primarily due to increasesin advertising and marketing expenses, personnel expenses and allocable office rent and utilities resulting from increases insalary over the periods, as we continue to invest in the development of the service.Our operating costs and expenses attributable to the Taxi segment increased by RUB 3,590 million, or 423.3%, from2015 to 2016 and by RUB 738 million, or 670.9%, from 2014 to 2015. With respect to 2016 compared to 2015, the primaryfactor contributing to the overall increase was an increase of RUB 2,854 million in advertising and marketing expenses.These increases were also due to increases in personnel expenses resulting from increases in headcount over the periods as wecontinue to invest in the development of the service. With respect to 2015 compared to 2014, the primary factor contributingto the overall increase was an increase of RUB 506 million in advertising and marketing expenses. We anticipate thatadvertising and marketing expenses of the Taxi segment will increase both in absolute terms and as a percentage of revenuesbecause of our continuing expansion to new regions.Our operating costs and expenses attributable to the Experiments category decreased by RUB 838 million, or21.8%, from 2015 to 2016, but increased by RUB 1,523 million, or 65.4%, from 2014 to 2015. The decrease in 2016compared to 2015 was primarily due to a decrease in overall expenses in Turkey in 2016, RUB 381 million of certainallowances provided for in 2015 but not in 2016 and a decrease of RUB 325 million in advertising and marketing expenses.With respect to 2015 compared to 2014, the overall increase was primarily due to increases in personnel expenses, allocableoffice rent and utilities and depreciation and amortization expenses.Interest Income, NetInterest income, net consists of interest earned on our cash, cash equivalents, term deposits and investments in debtsecurities, partially offset by interest expense representing coupon and amortization of debt discount and issuance costsrelated to our convertible notes issued in December 2013. We derive a considerable portion of our interest income from rubleterm deposits held in major Russian banks. Investments in term deposits, money market funds and debt securities held in theNetherlands generally yield considerably lower returns.Interest income, net decreased from RUB 1,744 million in 2015 to RUB 1,655 million in 2016, principally as aresult of a decrease of average interest rates on our investments, partly offset by RUB 85 million decrease in interest expenserepresenting coupon and amortization of debt discount and issuance costs related to our convertible notes.62 Table of ContentsInterest income, net increased from RUB 856 million in 2014 to RUB 1,744 million in 2015, principally as a resultof investing more of our cash from operating activities in Russia, where our investments earn significantly higher returnscomparing with the Netherlands and very high interest rates in Russia. In 2015, interest income was partially offset byinterest expense of RUB 1,293 million representing coupon and amortization of debt discount and issuance costs related toour convertible notes.Other Income, NetOur other income, net primarily consists of foreign exchange gains and losses generally resulting from changes inthe value of the U.S. dollar compared with the Russian ruble, and other non‑operating gains and losses, including gains fromthe sale of equity securities/subsidiaries, gains from repurchases of convertible notes and gains and losses from investmentsin equity securities.The following table presents the components of our other income, net in absolute terms and as a percentage ofrevenues, for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Foreign exchange gains/(losses) 6,553 1,903 (3,834) Gain from sale of equity securities — — 157 Gain from repurchases of convertible debt 548 310 53 Impairment of investments in equity securities (700) — — Other (105) 46 229 Total other income/(loss), net 6,296 2,259 (3,395) Total other income/(loss), net, as a percentage of revenues 12.4% 3.8% (4.5)%Because the functional currency of our operating subsidiaries in Russia is the Russian ruble, changes in the rublevalue of these subsidiaries’ monetary assets and liabilities that are denominated in other currencies (primarily the U.S. dollar)due to exchange rate fluctuations are recognized as foreign exchange gains or losses in our income statement. In 2014 and2015, because of the material depreciation of the ruble, we recorded in our primary Russian subsidiary as other income, netforeign exchange gain of RUB 6,518 million and RUB 1,835 million, respectively, arising from changes in the value of theU.S. dollar compared with the Russian ruble during the year. In 2016 we recognized foreign exchange losses in our primaryRussian subsidiary in the amount of RUB 3,710 million due to significant appreciation of the Russian ruble against the U.S.dollar. Although the U.S. dollar values of our U.S. dollar‑denominated cash, cash equivalents and term deposits are notimpacted by these currency fluctuations, they result in upward and downward revaluations of the ruble equivalent of theseU.S. dollar‑denominated monetary assets.In 2014, we repurchased $150 million in principal amount of our outstanding convertible notes for $131.1 millionresulting in a gain of RUB 548 million. In 2015, we repurchased $119.4 million in principal amount of our outstandingconvertible notes for $102.3 million resulting in a gain of RUB 310 million. In 2016, we repurchased $87.4 million inprincipal amount of our outstanding convertible notes for $82.0 million resulting in a gain of RUB 53 million.Items recognized as “Other” in “Other income, net” include gains and losses from investments in equity securities,changes in the fair value of derivative instruments and other non‑operating gains and losses.63 Table of ContentsProvision for Income TaxesThe following table presents our provision for income taxes and effective tax rate for the periods presented: Year ended December 31, 2014 2015 2016 (in millions of RUB, except percentages) Provision for income taxes 5,455 3,917 4,324 Effective tax rate 24.3% 28.8% 38.9%Our provision for income taxes increased by RUB 407 million from 2015 to 2016 and decreased by RUB1,538 million from 2014 to 2015, primarily as a result of changes in taxable income.Our effective tax rate increased by 10.1 percentage points from 2015 to 2016. Our effective tax rate was higher in2016 than in 2015 primarily due to the effects of certain provisions recognized in 2016 related to the results of prior years'tax audits, as well as an increase in share‑based compensation expense, which is non‑deductible. Adjusted for these effectsand share‑based compensation expense, as well as for the non-deductible goodwill impairment in 2015, our effective tax ratewould have been 23.4% and 22.7% in 2016 and 2015, respectively.Our effective tax rate increased by 4.5 percentage points from 2014 to 2015. Our effective tax rate was higher in2015 than in 2014 primarily due to the effects of goodwill impairment, certain allowances recognized in 2015, as well as anincrease in share-based compensation expense, all of which are non-deductible. Adjusted for these effects and share-basedcompensation expense, our effective tax rate would have been 22.7% in 2015.See “Critical Accounting Policies, Estimates and Assumptions—Tax Provisions” for additional information aboutour 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 auditedconsolidated financial statements included elsewhere in this Annual Report.Quarterly Results of OperationsThe following tables present our unaudited quarterly results of operations in rubles and as a percentage of revenuefor the eight consecutive quarters ended December 31, 2016. You should read the following tables together with ourconsolidated financial statements and related notes contained elsewhere in this Annual Report. We have prepared theunaudited quarterly information on the same basis as our audited consolidated financial statements. These tables includenormal recurring adjustments that we consider necessary for a fair presentation of our results of operations for the quarterspresented.Both seasonal fluctuations in internet usage and in advertising expenditures have affected, and are likely tocontinue 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 rublevalue of these subsidiaries’ monetary assets and liabilities that are denominated in other currencies (primarily the U.S. dollar)due to exchange rate fluctuations are recognized as foreign exchange gains or losses in our statements of income. As a result,our quarterly results of operations have been and will likely continue to be affected by the impact of foreign currencyfluctuations on our reported results of operations, particularly changes in the value of the U.S. dollar as compared to theRussian ruble.64 Table of ContentsOur operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year. Quarter ended Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, 2015 2015 2015 2015 2016 2016 2016 2016 (in millions of RUB) Consolidated statements of income data: Revenues 12,339 13,920 15,439 18,094 16,473 18,040 19,293 22,119 Operating costs and expenses: Cost of revenues(1) 3,713 3,982 4,318 4,797 4,504 4,696 4,918 5,636 Product development(1) 3,347 3,300 3,168 3,606 3,877 3,794 3,858 4,303 Sales, general and administrative(1) 2,303 2,568 2,618 4,112 3,258 3,717 4,475 6,435 Depreciation and amortization 1,490 1,874 2,152 2,275 2,394 2,316 2,489 2,408 Goodwill impairment — — — 576 — — — — Total operating costs and expenses 10,853 11,724 12,256 15,366 14,033 14,523 15,740 18,782 Income from operations 1,486 2,196 3,183 2,728 2,440 3,517 3,553 3,337 Interest income, net 484 356 415 489 523 437 351 344 Other income/(loss), net 833 (1,787) 2,076 1,137 (1,181) (842) (218) (1,154) Income before income taxes 2,803 765 5,674 4,354 1,782 3,112 3,686 2,527 Provision for income taxes 676 342 1,396 1,503 713 1,054 1,243 1,314 Net income 2,127 423 4,278 2,851 1,069 2,058 2,443 1,213 Net loss attributable to noncontrollinginterests — — — — — — — 15 Net income attributable to Yandex N.V. 2,127 423 4,278 2,851 1,069 2,058 2,443 1,228 (1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share‑basedcompensation expense. Quarter ended Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, 2015 2015 2015 2015 2016 2016 2016 2016 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) 30.1 28.6 28.0 26.5 27.3 26.0 25.5 25.5 Product development(1) 27.1 23.7 20.5 19.9 23.6 21.1 20.0 19.4 Sales, general and administrative(1) 18.7 18.4 17.0 22.7 19.8 20.6 23.2 29.1 Depreciation and amortization 12.1 13.5 13.9 12.6 14.5 12.8 12.9 10.9 Goodwill impairment — — — 3.2 — — — — Total operating costs and expenses 88.0 84.2 79.4 84.9 85.2 80.5 81.6 84.9 Income from operations 12.0 15.8 20.6 15.1 14.8 19.5 18.4 15.1 Interest income 3.9 2.5 2.8 2.7 3.2 2.5 1.8 1.5 Other income/(loss), net 6.8 (12.8) 13.4 6.3 (7.2) (4.7) (1.1) (5.2) Income before income taxes 22.7 5.5 36.8 24.1 10.8 17.3 19.1 11.4 Provision for income taxes 5.5 2.5 9.1 8.3 4.3 5.9 6.4 5.9 Net income 17.2 3.0 27.7 15.8 6.5 11.4 12.7 5.5 Net loss attributable to noncontrollinginterests — — — — — — — 0.1 Net income attributable to Yandex N.V. 17.2% 3.0% 27.7% 15.8%6.5% 11.4% 12.7% 5.6%(1)These amounts exclude depreciation and amortization expense, which is presented separately, and include share‑basedcompensation expense.Liquidity and Capital ResourcesAs of December 31, 2016, we had RUB 63,034 million ($1,039.1 million) in cash, cash equivalents, short‑termdeposits and short‑term debt securities. Cash equivalents consist of bank deposits with original maturities of three months orless and short-term deposits consist of bank deposits with original maturities of more than three months but no more than oneyear. Our current investment policy permits us to hold up to 50% of our total cash, cash equivalents, term65 Table of Contentsdeposits and debt securities in U.S. dollars and, additionally, to accumulate U.S. dollars for repayment of our convertible debtin 2018. In order to achieve this split of our currency holdings, we convert a portion of the rubles received from operations, aswell as from maturing deposits, into U.S. dollars. We maintain our U.S. dollar‑denominated accounts principally in theNetherlands and in Russia. Our U.S. dollar‑denominated holdings as of December 31, 2016 accounted for approximately67.1% of our cash, cash equivalents, term deposits and debt securities. 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 theunderwriters’ over-allotment option in January 2014. From time to time, we repurchase and retire outstanding notes. During2014, we repurchased and retired an aggregate of $150.0 million principal amount of the outstanding notes for$131.3 million. During 2015, we repurchased and retired an aggregate of $119.4 million principal amount of the outstandingnotes for $102.3 million. During 2016, we repurchased and retired an aggregate of $87.4 million principal amount of theoutstanding notes for $82.0 million.The notes are convertible into cash, our Class A shares or a combination of cash and Class A shares, at our election,under certain circumstances, based on an initial conversion rate of 19.44 Class A shares per $1,000 principal amount of notes(which represents an initial conversion price of approximately $51.45 per share), subject to adjustment on the occurrence ofcertain events. A further description of the accounting treatment related to the notes can be found in note 11 of our auditedconsolidated financial statements included elsewhere in this Annual Report. Those proceeds were received by our parentcompany, 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 flowgenerated from the operations of our Russian subsidiaries. Under current Russian legislation, there are no restrictions on ourability to distribute dividends from our Russian operating subsidiaries to our parent other than a requirement that dividendsbe limited to the cumulative net profits of our Russian operating subsidiaries, calculated in accordance with Russianaccounting principles, which differs from the cumulative net profit calculated in accordance with U.S. GAAP primarily due tothe treatment of accrued expenses (such as rent, sales agency commissions and bonuses, unused vacation), deferred taxes anddifferences arising from the capitalization and depreciation of property and equipment and amortization of intangible assets.In addition, these dividends cannot result in negative net assets at our Russian subsidiaries or render them insolvent.Pursuant to applicable Russian statutory rules, the amount that our principal Russian operating subsidiary would bepermitted to pay as a dividend to our parent company as of December 31, 2016 was approximately RUB 72,040 million($1,187.7 million).We are required to pay 5% withholding tax on all dividends paid from our Russian operating subsidiaries to ourparent company. Starting in 2014, we began to accrue for a 5% dividend withholding tax on the portion of the current yearprofit of our principal Russian operating subsidiary that is considered not to be permanently reinvested in Russia. As ofDecember 31, 2016, the cumulative amount of unremitted earnings upon which dividend withholding taxes have not beenprovided is approximately RUB 52,240 million ($861.2 million). We estimate that the amount of the unrecognized deferredtax liability related to these earnings is approximately RUB 2,612 million ($43.1 million). See “Risk Factors— Taxespayable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under theNetherlands‑Russia tax treaty.” We do not have any current plan to pay cash dividends on our shares in the near term.As of December 31, 2016, we had no outstanding indebtedness other than the convertible notes due 2018. We donot currently maintain any line of credit or other similar source of liquidity.66 Table of ContentsCash FlowsIn summary, our cash flows were: Year ended December 31, 2014 2015 2016 (in millions of RUB) Net cash provided by operating activities 15,546 19,576 25,449 Net cash used in investing activities (28,589) (11,676) (13,106) Net cash used in financing activities (11,707) (6,023) (5,021) Effect of exchange rate changes on cash 9,001 4,716 (3,328) Cash provided by operating activities. Cash provided by operating activities consists of net income adjusted fornon‑cash items, including depreciation and amortization expense, amortization of debt discount and issuance costs,share‑based compensation expense, deferred tax benefit/expense, foreign exchange gains and losses, gain from repurchases ofconvertible notes, gain from sale of equity securities, impairment of investments in equity securities, goodwill impairmentand the effect of changes in working capital.Cash provided by operating activities increased by RUB 5,873 million from 2015 to 2016. This increase wasprimarily due to an increase in net cash from operations before changes in working capital of RUB 4,196 million and anincrease of RUB 1,677 million in cash provided by changes in working capital. Cash provided by working capital was RUB2,006 million in 2016 and increased between the periods primarily due to significant increases in accounts payable andaccrued liabilities that were primarily related to tax provisions we accrued in 2016 as a result of prior years' tax audits.From 2014 to 2015, cash provided by operating activities increased by RUB 4,030 million, and was primarily due toan increase in net cash from operations before changes in working capital of RUB 1,970 million and an increase of RUB2,060 million in cash provided by changes in working capital. Cash provided by working capital was RUB 329 million in2015 and increased between the periods primarily due to significant decreases in prepaid expenses and other assets,principally arising from a decrease in interest receivable accrued.We believe that our existing cash, cash equivalents and cash generated from operations will be sufficient to satisfyour currently anticipated cash requirements through at least the next 12 months. To the extent that our cash, cash equivalentsand cash from operating activities are insufficient to fund our future activities, we may be required to raise additional fundsthrough equity or debt financings, including bank credit arrangements. Additional financing may not be available on termsfavorable to us or at all.Cash used in investing activities.Cash used in investing activities in 2016 increased by RUB 1,430 million compared to 2015 as a result of increasesin investments in term deposits (net of repayments) of RUB 2,905 million and in investments in debt securities (net ofproceeds from maturities) of RUB 1,496 million, as well as increases in loans granted of RUB 490 million and investments innon-marketable equity securities of RUB 381 million, which were partly compensated by decreases in capital expenditures ofRUB 3,420 million and in cash paid for acquisitions of new businesses of RUB 398 million.Cash used in investing activities in 2015 decreased by RUB 16,913 million compared to 2014 as a result ofdecreases in investments in term deposits (net of repayments) of RUB 10,845 million and in cash paid for acquisitions of newbusinesses of RUB 5,962 million, an increase in proceeds from maturities of debt securities of RUB 2,851 million and anamount of cash placed in escrow of RUB 714 million primarily related to contingent compensation payable to the sellers ofAuto.ru and KitLocate in 2014, which was partially compensated by increases in capital expenditures of RUB 3,366 million.Cash paid for acquisitions of businesses in 2015, net of cash acquired, primarily consists of cash paid for RosTaxi in January2015 and for Agnitum in December 2015.Our total capital expenditures were RUB 9,625 million in 2016 and RUB 13,045 million in 2015. Our capitalexpenditures have historically consisted primarily of the purchases of servers and networking equipment. We also incurredsignificant capital expenditures in 2015 and 2016 related to the construction of one of our larger data centers. To manageenhancements in our search technology, expected increases in internet traffic, advertising transactions and67 Table of Contentsnew services, and to support our overall business expansion, we will continue to invest in data center operations, technology,corporate facilities and information technology infrastructure in 2017 and thereafter. Moreover, we may spend a significantamount of cash on acquisitions and licensing transactions from time to time.Cash used in financing activities.For 2016, cash outflow from financing activities was RUB 5,021 million, reflecting RUB 5,397 million used torepurchase our outstanding convertible notes and RUB 152 million paid as contingent consideration, partly offset byproceeds of RUB 431 million from share option exercises.For 2015, cash outflow from financing activities was RUB 6,023 million, reflecting RUB 6,096 million used torepurchase our outstanding convertible notes and RUB 124 million paid as contingent consideration, partly offset byproceeds of RUB 168 million from share option exercises.Off‑Balance Sheet ItemsWe do not currently engage in off‑balance sheet financing arrangements, and do not have any interest in entitiesreferred to as variable interest entities, which include special purpose entities and other structured finance entities.Contractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2016: Payments due by period 2018 2020 Through through through Total 2017 2019 2021 Thereafter (in millions of RUB) Long-term principal debt obligations 20,214 — 20,214 — — Interest payments 454 227 227 — — Long‑term operating lease obligations 20,978 4,520 9,945 6,408 105 Data centers related purchase obligations 1,676 1,615 53 8 — Other purchase obligations 4,707 1,348 1,911 1,424 24 Payments related to business acquisitions 720 225 495 — — Total contractual obligations 48,749 7,935 32,845 7,840 129 The table above presents our long‑term rent obligations for our office and data center facilities, contractual purchaseobligations related to data center operations and facility build‑outs, as well as other purchase obligations primarily related tofixed utilities fees, technology licenses and other services and obligations related to repayment of our convertible notes due2018. For agreements denominated in U.S. dollars, the amounts shown in the table above are based on the U.S. dollar/Russianruble exchange rate prevailing on December 31, 2016. All amounts shown include value added tax, where applicable.Critical Accounting Policies, Estimates and AssumptionsOur accounting policies affecting our financial condition and results of operations are more fully described in ourconsolidated financial statements for the years ended December 31, 2014, 2015 and 2016, included elsewhere in this AnnualReport. The preparation of these consolidated financial statements requires us to make judgments in selecting appropriateassumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimateson historical experience and on various other assumptions that we believe to be reasonable under the circumstances, theresults of which form the basis of making judgments about the carrying values of assets and liabilities and the reportedamounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We believe our critical accounting policies that affect the moresignificant judgments and estimates used in the preparation of our consolidated financial statements are as follows:68 Table of ContentsTax ProvisionsSignificant judgment is required in evaluating our uncertain tax positions and determining our provision for incometaxes. FASB authoritative guidance on accounting for uncertainty in income taxes requires a two‑step approach torecognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition bydetermining if the weight of available evidence indicates that it is more likely than not that the position will be sustained onaudit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit asthe largest amount that is more than 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 thefinal tax outcome of these matters will 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 isdifferent from the amounts recorded, such differences will impact the provision for income taxes in the period in which suchdetermination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves thatare considered appropriate, as well as the related net interest. Our actual Russian taxes may be in excess of the estimatedamount expensed to date and accrued as of December 31, 2016, due to ambiguities in, and the evolution of, Russian taxlegislation, varying approaches by regional and local tax inspectors, and inconsistent rulings on technical matters at thejudicial level. See “Risk Factors—Risks Related to Doing Business and Investing in Russia and Other Countries in which WeOperate—Changes in the tax systems of Russia and other countries in which we operate, as well as unpredictable orunforeseen application of existing rules, may materially adversely affect our business, financial condition and results ofoperations.”In addition, significant management judgment is required in determining whether deferred tax assets will berealized. A valuation allowance is recognized to reduce deferred tax assets to amounts that are more likely than not toultimately be utilized based on our ability to generate sufficient future taxable income. If actual events differ frommanagement’s estimates, or to the extent that these estimates are adjusted in the future, any changes in the valuationallowance could materially impact our consolidated financial statements.Recognition and Impairment of Goodwill and Intangible AssetsThe FASB authoritative guidance requires us to recognize the assets of businesses acquired and respective liabilitiesassumed based on their fair values. Our estimates of the fair value of the identified intangible assets of businesses acquiredare based on our expectations of the future results of operations of such businesses. The fair value assigned to identifiableintangible assets acquired is supported by valuations that involve the use of a large number of estimates and assumptionsprovided by management.We assess the carrying value of goodwill arising from business combinations on an annual basis, or more frequentlyif events or changes in circumstances indicate that such carrying value may not be recoverable. Other than our annual review,factors we consider important that could trigger an impairment review include under‑performance of our reporting unitscompared with our internal budgets or changes in projected results, changes in the manner of utilization of the asset, andnegative 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 reportingunit to the fair value of the reporting unit. Therefore, our judgment as to the future prospects of our business has a significantimpact on our results and financial condition. If these future prospects do not materialize as expected or there is a futureadverse change in market conditions, we may be unable to recover the carrying amount of an asset, resulting in futureimpairment losses.Share‑Based Compensation ExpenseWe estimate the fair value of share options and share appreciation rights (together, “Share‑Based Awards”) that areexpected to vest using the Black‑Scholes‑Merton (BSM) pricing model and recognize the fair value ratably over the69 Table of Contentsrequisite service period using the straight‑line method. We used the following assumptions in our option‑pricing model whenvaluing Share‑Based Awards for grants made in the year ended December 31, 2014: Year endedDecember 31, 2014 Expected life of the awards (years) 5.52 ‑ 7.04 Expected annual volatility 38%Risk‑free interest rate 1.85%Expected dividend yield — No share options or SARs grants were made for the years ended December 31, 2015 and 2016.To determine the expected option term, we use the “simplified method” as allowed under the SEC’s accountingguidance, which represents the weighted‑average period during which our awards are expected to be outstanding.With respect to price volatility, for 2014 grants we used the future volatility of our share prices implied by ourconvertible 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 2014, 2015 or 2016 and do not have any plans to pay dividends inthe near term. We therefore use an expected dividend yield of zero in our option pricing model for awards granted in the yearended December 31, 2014.Until the fourth quarter of 2016, we determined the amount of share‑based compensation expense based on awardsthat we ultimately expect to vest, taking into account estimated forfeitures. U.S. GAAP required forfeitures to be estimated atthe time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Wecalculated the forfeiture rate by reference to our historical employee turnover rate. If our actual forfeiture rate is materiallydifferent from the estimate, share‑based compensation expense could be materially lower than what has been recorded.Starting the fourth quarter of 2016, we early adopted an Accounting Standard Update (“ASU”), which simplifies certainaspects of the accounting for share-based payment transactions to employees. We also elected to account for forfeitures asthey occur, rather than estimate expected forfeitures. This change did not have a material impact on retained earnings as ofJanuary 1, 2016.Recent Accounting PronouncementsSee Note 2 — “Summary of Significant Accounting Policies” in the Notes to our consolidated financial statementsincluded elsewhere in this Annual Report.Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange RiskThe functional currency of our Russian operating subsidiaries, which account for the significant majority of ouroperations, is the Russian ruble. Therefore, our reported results of operations are impacted by fluctuations in exchange ratesto the extent that we recognize foreign exchange gains and losses on monetary assets and liabilities denominated incurrencies other than the ruble, primarily the U.S. dollar. Total U.S. dollar denominated cash, cash equivalents, term depositsand short‑term debt securities held in Russia amounted to RUB 34,827 million and RUB 23,711 million as of December 31,2016 and 2015, respectively. If the U.S. dollar had been stronger/weaker by 15% relative to the value of the Russian ruble asof December 31, we would have recognized additional foreign exchange gains/losses before tax of RUB 4,424 million andRUB 1,819 million in 2016 and 2015, respectively.Furthermore, the revenues and expenses of our Russian operating subsidiaries are primarily denominated in Russianrubles. However, as was customary in the Russian real estate market, the majority of our rent expenses, currently includingthe lease for our Moscow headquarters, is denominated in U.S. dollars. Additionally, a major portion of our capitalexpenditures, primarily servers, networking and engineering equipment imported by Russian suppliers, can also bematerially affected by changes in the dollar‑ruble and euro‑ruble exchange rate. In the event of a material70 Table of Contentsappreciation of the U.S. dollar against the ruble, such as that which occurred in 2015, the ruble equivalents of these U.S.dollar‑denominated expenditures increase and negatively impact our net income and cash flows.The lease of our Moscow headquarters currently entails outstanding commitments of approximately RUB17,915 million as of December 31, 2016. The rent under these leases is denominated in U.S. dollars, but payable in rubles atthe then‑current exchange rate quoted by the Central Bank of Russia. The leases protect the landlord against depreciation ofthe U.S. dollar against the ruble, although we are not protected from any potential appreciation. The landlord’s protectionfrom U.S. dollar depreciation represents an embedded derivative that must be bifurcated and accounted for separately underU.S. GAAP. At the end of each period, we re‑measure the fair value of this embedded derivative and record any change in fairvalue as foreign exchange gains or losses in the statements of income. We estimate the fair value of this derivative instrumentusing a model that is sensitive to changes in the U.S. dollar to Russian ruble exchange rate. If the U.S. dollar had been weakerby 15% relative to the value of the Russian ruble as of December 31, 2016, we would have recognized additional foreignexchange gains before tax of RUB 9 million in 2016. If the U.S. dollar had been stronger by 15% relative to the value of theRussian ruble as of December 31, 2016, we would have recognized additional foreign exchange losses before tax of RUB9 million in 2016. To decrease the impact of swings in the exchange rates we have entered into hedging transaction inrespect of these leases, see Note 18 — “Subsequent events” in the Notes to our consolidated financial statements includedelsewhere in this Annual Report.The functional currency of our Dutch parent company is the U.S. dollar. The functional currency of our subsidiariesincorporated in other countries is generally the respective local currency. The financial statements of these non‑Russianentities have been translated into rubles using the current rate method, where balance sheet items are translated into rubles atthe period‑end exchange rate and revenue and expenses are translated using a weighted average exchange rate for therelevant period. The resulting translation gains and losses for the years ended December 31, 2014, 2015 and 2016 areincluded as a foreign currency translation adjustment recorded as part of accumulated other comprehensive income on ourconsolidated balance sheets. U.S. dollar cash, cash equivalents and term deposits comprise the largest portion of our assets inthe Netherlands. Total U.S. dollar denominated cash, cash equivalents and term deposits held in the Netherlands amounted toRUB 5,955 million and RUB 10,160 million as of December 31, 2016 and 2015, respectively. If the U.S. dollar had beenstronger/weaker by 15% relative to the value of the Russian ruble as of December 31, we would have recognized additionalother comprehensive gains/losses of RUB 828 million and RUB 552 million in 2016 and 2015, respectively.Subsequent to December 31, 2016, the Russian ruble remained volatile against foreign currencies, including theU.S. dollar. The currency exchange rate as of December 31, 2016 was RUB 60.6569 to $1.00 and, during the period fromDecember 31, 2016 to March 17, 2017, the exchange rate of the Russian ruble appreciated to RUB 58.2437 to $1.00. Thelowest rate reached during this period was RUB 60.6569 to $1.00 as of January 9, 2017. The highest rate reached during thisperiod was RUB 56.7719 to $1.00 as of February 16, 2017.Interest Rate RiskWe had cash, cash equivalents and term deposits of RUB 60,001 million and held debt securities of RUB 3,033million as of December 31, 2016. We do not believe that we have any material exposure to changes in the fair value of ourcash, cash equivalents, term deposits and debt securities balances as a result of changes in interest rates. We do not enter intoinvestments for trading or speculative purposes. Declines in interest rates, however, will reduce future investment income.In December 2013, we issued and sold $600.0 million in aggregate principal amount of 1.125% convertible seniornotes due December 15, 2018. In January 2014, we issued and sold an additional $90.0 million in aggregate principalamount of such notes. During 2014, we repurchased and retired $150 million in aggregate principal amount of theoutstanding notes. During 2015, we repurchased and retired an aggregate of $119.4 million principal amount of theoutstanding notes for $102.3 million. During 2016, we repurchased and retired an aggregate of $87.4 million principalamount of the outstanding notes for $82.0 million. We carry the convertible notes at face value less unamortized discountand debt issuance costs on our balance sheet. The fair value of the notes changes when the market price of our shares orinterest rates fluctuate.71 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 andtheir respective age and position as of the date of this Annual Report:Name Age Date ofExpirationof CurrentTerm ofOffice DirectororExecutiveOfficerSince TitleArkady Volozh 53 2017 2000 Executive Director and Chief Executive OfficerJohn Boynton 51 2018 2000 Chairman and Non-Executive DirectorEsther Dyson 65 2018 2006 Non-Executive DirectorElena Ivashentseva 50 2017 2000 Non-Executive DirectorRogier Rijnja 54 2019 2013 Non-Executive DirectorCharles Ryan 49 2019 2011 Non-Executive DirectorAlexander Voloshin 60 2019 2010 Non-Executive DirectorHerman Gref 53 2017 2014 Non-Executive DirectorAlexander Shulgin 39 N/A 2010 Chief Operating OfficerG. Gregory Abovsky 40 N/A 2014 Chief Financial OfficerMr. Volozh is the principal founder of Yandex and has been our Chief Executive Officer and a director since 2000. Aserial entrepreneur with a background in computer science, Mr. Volozh co‑founded several successful IT enterprises,including InfiNet Wireless, a Russian provider of wireless networking technology, and CompTek International, one of thelargest distributors of network and telecom equipment in Russia. In 2000, Mr. Volozh left his position as CEO of CompTekInternational 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 thedevelopment of electronic search for use in patents, Russian classical literature and the Bible. Mr. Volozh holds a degree inapplied mathematics from the Gubkin Institute of Oil and Gas.Mr. Boynton has been a non‑executive director since 2000 and has served as Chairman since 2016. Mr. Boynton isthe president of Firehouse Capital Inc., a privately held investment company with investments in a variety of early stagecompanies. He also serves on the boards of several non‑profit organizations. Mr. Boynton served as a founder and managingdirector of Wilson Alan LLC from 2001 through 2006, as vice president of corporate strategy and development at ForresterResearch from 1997 to 2001, as a strategy consultant with Mercer Management Consulting from 1995 to 1997, and asco‑founder and president of CompTek International from 1990 to 1995. Mr. Boynton graduated from Harvard College.Ms. Dyson has been a non‑executive director since 2006. Ms. Dyson is the executive founder of Way to Wellville, aUS non‑profit dedicated to the production of health and the demonstration of its financial feasibility through afive‑community project. Ms. Dyson is an active investor and board member in a variety of IT, health care and aerospacestart‑ups, and also sits on the board of Luxoft, another IT company of Russian origin. She started her career as a fact‑checkerfor Forbes Magazine, and then spent five years as a securities analyst on Wall Street. At New Court Securities, Ms. Dysoncomprised the sell‑side research department, and worked on the initial public offering of Federal Express, among others. AtOppenheimer & Co., she followed the nascent software and personal computer markets. From 1982 to 2004, as the owner ofEDventure Holdings, she edited its newsletter Release 1.0 and ran its annual PC Forum conference. She sold EDventure toCNET in 2004, and reclaimed the name when she left CNET at the beginning of 2007. In addition to Yandex and Luxoft, herRussian interests have included advisory board seats with both IBS Group and SUP/LiveJournal, and investments in thetechnology companies Epam, Ostrovok, Medesk, Fairwaves, TerraLink, UCMS and Zingaya. In the U.S., she sits on theboards of 23andMe, Meetup, Voxiva, XCOR Aerospace and others. She was an early investor in Flickr and del.icio.us (sold toYahoo!), Medstory and Powerset (sold to Microsoft), Brightmail (sold to Symantec), Postini (sold to Google), Square Tradeand Apiary, among others. She is the author of “Release 2.0: A design for living in the digital age” (1997), which has beentranslated into 18 languages. She earned a B.A. in economics from Harvard University.Ms. Ivashentseva has been a non‑executive director since 2000. Ms. Ivashentseva is a partner at Baring VostokCapital Partners, a Russian private equity firm. Baring Vostok structured and led the initial investment in Yandex in 2000 byInternet Search Investments Limited (the parent of ru‑Net B.V.), in which a Baring Vostok fund was the72 Table of Contentsfounder and largest shareholder. Since 2000, Ms. Ivashentseva has managed the investment in Yandex on behalf of BaringVostok. She is also a member of the board of Avito, Ozon, Centre for Financial Technologies, Gett and other portfoliocompanies of Baring Vostok, and was previously a member of the board of directors of CTC Media, Inc., a leadingNASDAQ‑listed Russian television broadcaster, and other portfolio companies of Baring Vostok. 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 a master’s degree in finance and accounting from the London School of Economics and a diplomawith honors in economics from Novosibirsk University. She is 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 SeniorVice President of Human Resources and a member of the executive committee at D.E Master Blenders, a Dutch publiccompany listed on the Amsterdam Stock Exchange, from 2011 to February 2014. Prior to joining D.E Master Blenders,Mr. Rijnja served as head of the human resources departments at several international companies, including Maxeda (2008 to2011), Numico N.V. (2004 to 2008) and Amazon.com (2002 to 2004). He was previously the director of global managementdevelopment at Reckitt Benckiser PLC from 1998 to 2002, and a human resources manager for Nike Europe from 1996 to1998. Mr. Rijnja held several positions at Apple between 1989 and 1996 in the Netherlands and the United States. Mr. Rijnjahas 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 27 years of experience inboth the Russian and international markets, Mr. Ryan co‑founded United Financial Group (UFG) and became its Chairmanand CEO in 1994. In 1998, Mr. Ryan initiated the New Technology Group within UFG Asset Management, which sponsoredan early stage technology investment in ru‑Net Holdings whose investments include Yandex. In 2006, Deutsche Bankacquired 100% of UFG’s investment banking business, and Mr. Ryan was appointed chief country officer and CEO ofDeutsche Bank Group in Russia and remained in that position until the end of 2008, when he became chairman of UFG AssetManagement. From 2008 through the end of 2010, 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 1991 and as an associate and principal banker withthe European Bank for Reconstruction and Development in London from 1991 to 1994. Mr. Ryan has a degree inGovernment from Harvard University.Mr. Voloshin has been a non-executive director of Yandex since August 2010 after serving as an advisor to thecompany for two years. Mr. Voloshin serves as the Chairman of the Board of Directors of Joint Stock Company "FreightOne". Mr. Voloshin also served as Chairman of the Board of Directors of Uralkali from 2010 to 2014, as Chairman of theBoard of Directors of the MMC Norilsk Nickel from 2008 to 2010 and as Chairman of the Board of Directors of RAO “UES ofRussia” from 1999 to 2008. From 1999 to 2003, Mr. Voloshin held the post of Chief of Staff of the Russian President,moving up from Deputy Chief of Staff in 1998-1999 and Assistant to the Chief of Staff in 1997-1998. He graduated from theMoscow Institute of Transport Engineers in 1978 and holds a degree in economics from the All Russia Foreign TradeAcademy.Mr. Gref has been a non‑executive director since May 2014. Mr. Gref has served since 2007 as the Chief ExecutiveOfficer and Chairman of the Executive Board of Sberbank of Russia, one of the largest commercial banks in Russia. From2000 to 2007, Mr. Gref served as the Minister for Economic Development of the Russian Federation and has previouslyserved in a number of government positions at the federal and regional levels in Russia. Mr. Gref holds a degree in law fromOmsk State University, a Ph.D. in law from St Petersburg State University and a Ph.D. in economics from The RussianPresidental Academy of National Economy and Public Administration. Mr. Gref holds a Citation and Certificate of Honorfrom the President of the Russian Federation, the Order for Distinguished Service of Grade IV and the Stolypin Medal.Mr. Shulgin was appointed Chief Operating Officer in 2014. Mr. Shulgin joined Yandex as Chief Financial Officerin May 2010. A finance professional with 13 years of experience in the FMCG industry, Mr. Shulgin worked in differentfinance positions in Coca‑Cola Hellenic from 1997 until 2007. In 2007, he was appointed country chief financial officer ofCoca‑Cola Hellenic Russia. Mr. Shulgin has a degree in Management from Rostov‑on‑Don State University.Mr. Abovsky was appointed Chief Financial Officer in 2014. Mr. Abovsky joined Yandex as Vice President ofInvestor Relations in January 2013, taking on the additional role of Vice President of Corporate Development in October2013. Mr. Abovsky began his career in the investment banking division of Morgan Stanley, and has over 14 years ofexperience in a variety of finance and investment management roles in the media and technology sectors. Mr. Abovsky73 Table of Contentsholds a B.A. in Business Economics and Russian Literature from Brown University and an M.B.A. with High Distinction fromHarvard Business School.To our knowledge, there are no family relationships among any of the members of our board or senior management.Compensation and Share Ownership of Executive Officers and Directors.The aggregate cash compensation paid or accrued in 2016 for members of our management team (a total of 18persons), as a group, was RUB 415 million ($6.8 million).In May 2011, we granted each of our non‑executive directors an option to acquire 28,000 Class A shares at theinitial public offering price of $25.00 per share, effective on the closing of our initial public offering. Such options vestedover a four‑year period. In May 2013, we granted to a new non‑executive director an option to acquire 28,000 Class A sharesat a price of $27.74 per share. In May 2014, we granted a new non‑executive director an option to acquire 28,000 Class Ashares at a price of $33.09 per share.In May 2015, our Compensation Committee and Board approved grants of further equity awards to the members ofour Board. Each member was granted 14,000 restricted shares units (below – “RSUs”). In addition, the chairman was grantedan additional 14,000 RSUs; each member of the audit committee and compensation committee (other than the committeechairmen) was granted an additional 2,000 RSUs; and each chairmen of such committees was granted an additional 5,000RSUs. Such awards vest over four years, with 25% vesting in May 2016 and the remainder vesting quarterly over thefollowing three years.In May 2016, we made an offer to our non‑executive directors to exchange up to an aggregate of 196,000 of theiroutstanding options for RSUs based on an exchange ratio of 2:1. As a result of exchange, a total of seven non‑executivedirectors exchanged an aggregate of 196,000 options for an aggregate of 98,000 RSUs. The replacement RSUs are subject toan additional 12 months vesting period beyond the original vesting schedule of the exchanged options. In addition, noexercise of the replacement RSUs are permitted for a 12 month period starting from the date of the exchange which occurredin May 2016.In November 2016, our Compensation Committee and Board approved grants of an additional 14,000 RSUs to thenew chairman of the Board of Directors. The award vests over four years, with 25% vesting in June 2017 and the remaindervesting quarterly over the following three years.For information on share ownership and options held by our directors and senior management, please see “MajorShareholders and Related Party Transactions”.Corporate GovernanceWe have an audit committee, a compensation committee and a nominating and corporate governance committee.We have adopted a charter for each of these committees.Audit CommitteeOur audit committee consists of Messrs. Ryan (chairperson) and Boynton and Ms. Ivashentseva. Each membersatisfies the “independence” requirements of the NASDAQ listing standards, and Mr. Ryan qualifies as an “audit committeefinancial 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 auditcommittee is responsible for, among other things:·making recommendations to our board of directors regarding the appointment by the shareholders of ourindependent auditors;·overseeing the work of the independent auditors, including resolving disagreements between management andthe independent auditors relating to financial reporting;74 Table of Contents·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 theindependent 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 oninternal controls, the auditor’s engagement letter and independence letter and other material writtencommunications 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 directorsfrom time to time.Compensation CommitteeOur compensation committee consists of Messrs. Boynton (chairperson), Dyson and Rijnja. Each member satisfiesthe “independence” requirements of the NASDAQ listing standards. The compensation committee assists the board ofdirectors in reviewing and approving or recommending our compensation structure, including all forms of compensationrelating to our directors and management. Members of our management may not be present at any committee meeting whilethe compensation of our chief executive officer is deliberated. Subject to the terms of the remuneration policy approved byour general meeting of shareholders from time to time, as required by Dutch law, the compensation committee is responsiblefor, among other things:·reviewing and making recommendations to the board of directors with respect to compensation of ourexecutive and non‑executive directors;·reviewing and approving the compensation, including equity compensation, change‑of‑control benefits andseverance arrangements, of our chief financial officer and such other members of our management as it deemsappropriate;·overseeing the evaluation of our management;·reviewing periodically and making recommendations to our board of directors with respect to any incentivecompensation 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 suchplans unless otherwise expressly authorized to do so; and·attending to such other matters as are specifically delegated to our compensation committee by our board ofdirectors from time to time.Nominating and Corporate Governance CommitteeOur nominating and corporate governance committee consists of Mr. Boynton (chairperson) and Ms. Ivashentseva.Each member satisfies the “independence” requirements of the NASDAQ listing standards. The nominating and corporategovernance committee assists the board of directors in selecting individuals qualified to75 Table of Contentsbecome our directors and in determining the composition of the board of directors and its committees. The nominating andcorporate 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 anymeeting 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 guidelinesapplicable to the company.Employment AgreementsSubstantially all of our employees are employed by our operating subsidiaries. Our employment agreementsgenerally contain the minimum statutory notice periods required under Russian law. The employment agreements betweenour subsidiaries and certain senior managers and other employees contain non‑competition and non‑solicitation provisions,although we understand that such provisions are generally unenforceable under Russian law.EmployeesThe following table indicates the composition of our workforce as of December 31 each year indicated: 2014 2015 2016 Russia 5,020 4,970 5,877 Other 596 493 394 Total 5,616 5,463 6,271 2014 2015 2016 Product development 3,329 3,286 3,709 Sales, general and administration 1,826 1,759 2,095 Cost of sales 461 418 467 Total 5,616 5,463 6,271 We also typically employ several hundred contract workers on a part‑time basis which are not reflected in the tableabove, and the numbers of such contract workers generally vary in line with the numbers of full‑time staff.Our employees are not represented by any collective bargaining agreements and we have never experienced a workstoppage. We believe our employee relations are good.Employee PlansWe grant equity awards in the form of share options, share appreciation rights, restricted shares and restricted shareunits (or so called “deferred shares”) under our Fourth Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”)and our 2016 Equity Incentive Plan (the “2016 Plan” and together with the 2007 Plan, the “Plans”) (“CompanyAwards”). Our 2016 Plan was approved at our 2016 annual general meeting of shareholders on May 27, 2016 and replacedour 2007 Plan. However, there remain unexercised grants under our 2007 Plan. The total number of shares available forissuance under the Plans is equal to 15% of the aggregate number of Class A and Class B shares outstanding from time totime.Additionally, the 2016 Plan provides employees at certain of our business units, including Taxi, Classifieds andMarket (the “Participating Subsidiaries”), the opportunity to receive equity awards in respect of such ParticipatingSubsidiary (the “Business Unit Equity Awards”). Business Unit Equity Awards and any awards granted to management of theParticipating Subsidiaries outside of the 2016 Plan are to not exceed 20% of such Participating Subsidiary’s shares issuedand outstanding from time to time. In the future, additional of our business units may become Participating Subsidiaries.76 Table of ContentsPlan administration. Our board of directors or its compensation committee administers our Plans. Although ourPlans sets forth certain terms and conditions of our equity awards, our board of directors or its compensation committeedetermines 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 Company Awards to employees and directors of and consultants to our company and itssubsidiaries. With respect to Business Unit Equity Awards, we may grant awards in the equity of a Participating Subsidiary toemployees, officers, members of the board of directors, advisors and consultants of such Participating Subsidiary.Exercise price and term of equity awards. With respect to the Company Awards, the exercise price of options ormeasurement price of share appreciation rights awards is the average closing price per Class A share on the NASDAQ GlobalSelect Market on the 20 trading days immediately following the grant date. With respect to Business Unit Equity Awards, theexercise price of options or measurement price of share appreciation rights shall be determined from time to time by theBoard (following consultation with an independent valuation expert). Restricted share unit awards have no exercise ormeasurement price. Equity awards are generally exercisable up until the tenth anniversary of the grant date so long as thegrantee’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 /16ths vesting on the first anniversary of grant and an additional /16th vesting each quarter thereafter. When a grantee’semployment or service is terminated, the grantee may generally exercise his or her options that have vested as of thetermination 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 theirterms and the terms of the 2007 Plan, as follows:·In the event that an optionee intends to exercise an option and immediately sell the shares acquired, we willissue Class A shares upon such exercise.·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 shares upon such exercise. Such Class B shares will be subject to the transfer andconversion 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 andthe terms of the Plans.Amendment and Termination. Our board of directors may at any time amend, suspend or terminate our 2016 Plan.Prior to any such amendment, suspension or termination, our board of directors must first make a determination that shareoptions already granted will not be adversely affected. Unless terminated earlier, our 2016 Plan will continue in effect untilMay 2026.Equity Award Exchanges. In April 2015, we offered certain of our employees the opportunity to exchangeoutstanding share appreciation rights awards for new restricted share unit awards. As a result of recent economic and marketconditions, the value of our Class A shares has fluctuated significantly in recent periods and we believed that restricted shareunit awards would provide a better incentive for our employees in these conditions. Each eligible employee was thereforegiven the opportunity to exchange outstanding share appreciation rights awards for restricted share unit awards on atwo‑for‑one basis (two share appreciation rights for one restricted share unit), subject to longer vesting and exercisabilityterms. In particular, such replacement awards vest over a five‑year period, compared with the four‑year vesting term of theoriginal share appreciation rights awards. A total of 14 employees, including our Chief Operating Officer and Chief FinancialOfficer, participated in the offer, exchanging a total of 1,663,750 share appreciation rights for a total of 831,875 restrictedshare units.In July and September 2015, we completed additional exchanges of outstanding share appreciation rights awards fornew restricted share unit awards based on an exchange ratio of 2:1. In all but one instance, the exchanges were effected fornon‑senior employees and the replacement restricted share units are subject to the same vesting schedule as was in place forthe replaced share appreciation rights awards. An exchange was also offered to and accepted77 41 Table of Contentsby one senior employee; in this case the replacement restricted share units were granted on the condition that vesting be resetto begin as of January 1, 2016.As a result of the exchanges, a total of 42 employees exchanged an aggregate of 256,850 share appreciation rightsfor an aggregate of 128,426 restricted share units during the third quarter of 2015.In May 2016, we made an offer to our non‑executive directors to exchange up to an aggregate of 196,000 of theiroutstanding options for RSUs based on an exchange ratio of 2:1. As a result of exchange, a total of seven nonexecutivedirectors exchanged an aggregate of 196,000 options for an aggregate of 98,000 RSUs. The replacement RSUs are subject toan additional 12 months vesting period beyond the original vesting schedule of the exchanged options. In addition, noexercise of the replacement RSUs is permitted for a 12 month period starting the date of exchange. Item 7. Major Shareholders and Related Party Transactions.The following table contains information concerning each of our directors and members of our senior managementand each shareholder known by us to beneficially own more than five percent of each class of our outstanding ordinaryshares. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission andincludes voting or investment power with respect to our shares.The number of shares outstanding used in calculating the percentage for each listed shareholder includes the sharesunderlying options held by such shareholder that are exercisable within 60 days of February 28, 2017. The percentage ofbeneficial ownership is based on 278,336,356 Class A shares and 45,037,734 Class B shares outstanding as of February 28,2017. All holders of our ordinary shares, including those shareholders listed below, have the same78 Table of Contentsvoting rights with respect to such shares. Class A shares have one vote per share, and Class B shares have 10 votes per share. Shares Beneficially Owned as of February 28, 2017 Class A Shares Class B Shares Total Percentage Number of Number of By Voting By Number of Name of Beneficial Owner Shares % Shares % Power(1) Shares Directors and Senior Management:Arkady Volozh(2)2,940*34,459,68476.51% 47.29% 10.66%John Boynton(3)104,637*0—**Esther Dyson(4)178,296*0—**Elena Ivashentseva(5)266,806*0—**Rogier Rijnja(6)13,860*0—**Charles Ryan(7)349,176*0—**Alexander Voloshin(8)67,894*0—**Herman Gref(9)10,640*0—**Alexander Shulgin(10)25,000*0—**G. Gregory Abovsky(11)46,022*0—**All current directors and seniormanagement as a group (10 persons)(12)1,065,2710.38% 34,459,68476.51% 47.43% 10.98%Principal Shareholders:Baillie Gifford & Co.(13)22,702,6778.16% 0—3.12% 7.02%Capital Group Companies(14)17,385,9716.25% 0—2.39% 5.38%WCM Investment Management (15)14,073,6065.06% 0—1.93% 4.35%Vladimir Ivanov9,512,4913.42% 3,318,8847.37% 5.86% 3.97%Total shares held by directors,management and 5% holders64,740,01623.26% 37,778,56883.88% 60.73% 31.70%*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, votingtogether as a single class. Each holder of Class B shares is entitled to ten votes per Class B share and each holder ofClass A shares is entitled to one vote per Class A share on all matters submitted to our shareholders for a vote. TheClass A shares and Class B shares vote together as a single class on all matters submitted to a vote of our shareholders,except as may otherwise be required by Dutch law or our articles of association. Each Class B share is convertible at anytime by the holder into one Class A share and one Class C share.(2)Excludes 607,875 restricted share units in respect of Class A shares that are not vested or exercisable within 60 daysafter February 28, 2017.(3)Includes (a) 60,000 Class A shares held by trusts, the beneficiaries of which include Mr. Boynton or members of hisfamily, (b) 25,000 Class A shares held by the John W. Boynton Trust of 2006, and (c) 14,000 vested restricted shareunits that become exercisable in May 2017 in respect of Class A shares (see note 12). Other than in respect of the sharesheld by the John W. Boynton Trust of 2006, Mr. Boynton disclaims beneficial ownership of these shares except to theextent of his pecuniary interest therein. Excludes 25,813 restricted share units in respect of Class A shares that are notvested or exercisable within 60 days after February 28, 2017.(4)Includes 14,000 vested restricted share units that become exercisable in May 2017 in respect of Class A shares (seenote 12). Excludes 9,000 restricted share units in respect of Class A shares that are not vested or exercisable within 60days after February 28, 2017.79 Table of Contents(5)Includes (a) 252,806 Class A shares held by Caldwell Associated Inc., a company controlled by Ms. Ivashentseva, and(b) 14,000 vested restricted share units that become exercisable in May 2017 in respect of Class A shares (see note 12),held by BC&B Holdings B.V. (“BC&B”), which holds the equity awards on behalf of the Baring Vostok Private EquityFunds. Ms. Ivashentseva is a senior partner of Baring Vostok Capital Partners Limited, a Cypriot limited company,which is a sub adviser to Baring Vostok Capital Partners Limited, a limited liability company incorporated under thelaws of and registered in Guernsey, which acts as the investment advisor with respect to the investment by BaringVostok Private Equity Funds in BC&B. Ms. Ivashentseva disclaims beneficial ownership of these shares except to theextent of her pecuniary interest therein. Excludes 9,000 restricted share units in respect of Class A shares that are notvested or exercisable within 60 days after February 28, 2017.(6)Includes 10,500 vested restricted share units that become exercisable in May 2017 in respect of Class A shares (seenote 12). Excludes 12,500 restricted share units in respect of Class A shares that are not vested or exercisable within 60days after February 28, 2017.(7)Includes (a) 329,892 Class A shares held by trusts, the beneficiaries of which include Mr. Ryan or members of his familyand by Mr. Ryan directly and (b) 14,000 vested restricted share units that become exercisable in May 2017 in respect ofClass A shares (see note 12). Excludes 10,688 restricted share units in respect of Class A shares that are not vested orexercisable within 60 days after February 28, 2017.(8)Includes (a) 14,000 vested restricted share units that become exercisable in May 2017 in respect of Class A shares (seenote 12), and (b) options to purchase 50,000 Class A shares that are exercisable within 60 days after February 28, 2017.Excludes 7,875 restricted share units in respect of Class A shares that are not vested or exercisable within 60 days afterFebruary 28, 2017.(9)Includes 7,700 vested restricted share units that become exercisable in May 2017 in respect of Class A shares (see note12). Excludes 14,175 restricted share units in respect of Class A shares that are not vested or exercisable within 60 daysafter February 28, 2017.(10)Consists of options to purchase 25,000 Class A shares, and excludes 200,000 restricted share units that are notexercisable within 60 days after February 28, 2017.(11)Consists of 46,022 vested restricted share units that are exercisable within 60 days after February 28, 2017. Excludes324,605 restricted share units held by Mr. Abovsky that are not vested or exercisable within 60 days after February 28,2017.(12)Includes options to purchase 75,000 Class A shares and 134,222 vested restricted share units that are exercisable within60 days after February 28, 2017. Excludes 1,221,531 restricted share units that are not vested or exercisable within60 days after February, 2017.In May 2016, our Board and Compensation Committee offered to the members of our Board the opportunity to exchangeoutstanding options to purchase Class A shares for restricted share units, at a ratio of two‑for‑one, subject to anadditional one year of vesting. In addition, no exercise of the replacement RSUs will be permitted for a 12-month periodstarting the date of exchange. As a result of the exchange, 7 directors exchanged 196,000 share options for an aggregateof 98,000 RSUs in the second quarter of 2016.(13)The number of shares reported is based solely on the Schedule 13G/A filed by Baillie Gifford & Co. on February 13,2017. Such Schedule 13G states that the securities reported as being beneficially owned by Baillie Gifford & Co. areheld by Baillie Gifford & Co. and/or one or more of its investment adviser subsidiaries, which may include BaillieGifford Overseas Limited, on behalf of investment advisory clients, which may include investment companies registeredunder the Investment Company Act, employee benefit plans, pension funds or other institutional clients.(14)The number of shares reported is based solely on the Schedules 13G filed by Capital World Investors on February 13,2017 and by the EuroPacific Growth Fund on February 14, 2017. Capital Research Global Investors is a division ofCapital Research and Management Company (“CRMC”) and is deemed to be the beneficial owner of the shares as aresult of CRMC acting as investment adviser to various investment companies registered under Section 8 of theInvestment Company Act of 1940. EuroPacific Growth Fund claims beneficial ownership over80 Table of Contents11,483,088 Class A shares and in certain circumstances may vote those shares, however, these shares may also bereflected in a filing made by Capital World Investors.(15)The number of shares reported is based solely on the Schedule 13G/A filed by WCM Investment Management on March14, 2017.Holdings by U.S. ShareholdersAs of February 28, 2017, there was one holder of record of Class A shares (Cede & Co., as nominee for DTC) andthere was one holder of record of Class B shares located in the United States. Together, these two holders held in theaggregate approximately 98.12% and 3.11% of our outstanding Class A and B shares by number, respectively, whichrepresented in the aggregate approximately 39.40% of our outstanding shares by voting power.Related Party TransactionsShareholders’ AgreementShareholders holding an aggregate of approximately 56 million Class A and Class B shares, representingapproximately 59% of the voting power of our outstanding shares, are parties to a shareholders agreement, the principal termsof 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‑electingthose persons nominated by our board of directors for election or re‑election as a director at any general meeting of ourshareholders.Compliance with foreign ownership laws. The parties have agreed to comply with any applicable laws from time totime in effect that regulate the owners of Yandex by non‑Russian parties.Amendments to articles of association. The parties have agreed that they will vote against any proposal to amendthe articles of association in such a way 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 least50% of our outstanding share capital;·the authorized preference shares;·requirements that certain matters, including an amendment of our articles of association, may only be broughtto our shareholders for a vote upon a proposal by our board of directors;·the supermajority requirements for shareholder approval of certain significant corporate actions, including alegal merger or demerger of our company 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 partiesacting in concert of the legal or beneficial ownership of 25% or more, in number or by voting power, of ouroutstanding 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 remainoutstanding. The agreement may be terminated and amended, and any provision thereof waived, with the prior writtenconsent of parties to the agreement holding shares representing more than 66/3% of the voting power of the outstandingshare capital held by parties to the agreement. The agreement will terminate with respect to any particular shareholder81 2 Table of Contentsupon 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 or mandatory conversion of all Class B Shares held by it into Class A Shares.Registration Rights AgreementWe are party to a registration rights agreement with our major shareholders that allows them to require us to registerClass A shares held by them under the U.S. Securities Act of 1933, as amended (the “Securities Act”), under certaincircumstances.Demand registration rights. Shareholders party to the agreement together holding approximately 38 millionClass A and Class B shares have the right to require that we register their securities for sale. Certain other shareholders havethe right to join in a demand registration. We have the right not to effect a demand registration (a) if we have already effectedone demand registration, (b) if the aggregate price, net of underwriters’ discounts or commissions, of all registrable securitiesincluded in such registration is less than $7,500,000, (c) if the initiating shareholders propose to register securities that maybe immediately registered on Form F‑3, or (d) in a jurisdiction where we would be required to qualify to do business orexecute a general consent to service of process in effecting such a registration. We have the right to defer filing of aregistration statement for up to 120 days if our board of directors determines in good faith that filing of a registrationstatement would be detrimental to us, but we cannot exercise such deferral right more than once in any 12‑month period.Piggyback registration rights. If we propose to file a registration statement for a public offering of our securitiesother than relating to an employee share option, share purchase or similar plan or pursuant to a merger, exchange offer, orsimilar transaction, then we must offer holders of registrable securities an opportunity to include in this registration all or anypart of their registrable securities. We must use our best effort to cause the underwriters in any underwritten offering to permitthe shareholders 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 theagreement holding shares with an aggregate market value of at least $50,000,000 have the right to request that we file aregistration statement on Form F‑3. We are not obligated to file a registration statement on Form F‑3 if (a) we have alreadyeffected two registrations on Form F‑3 for holders of registrable securities during the 12‑month period preceding aregistration request, (b) the aggregate price, net of underwriters’ commissions or discounts, of registrable securities includedin such registration is less than $10 million, or (c) in a jurisdiction where we would be required to qualify to do business orexecute a general consent to service of process in effecting such a registration. We have the right to defer filing of aregistration statement for up to 120 days if our board of directors determines in good faith that filing of a registrationstatement 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 thanunderwriting commissions and discounts.Relationship with SberbankSberbank is a major financial institution and the largest savings bank in the Russian Federation. Approximately51% of its voting shares are held by the Central Bank of the Russian Federation. Herman Gref, the Chief Executive Officerand Chairman of the Executive Board of Sberbank, is a member of our Board of Directors.Priority ShareIn September 2009, we issued our priority share to Sberbank for its nominal value of €1.00. As the holder of ourpriority share, Sberbank has the right 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 by voting power, of ouroutstanding Class A and Class B shares (taken together), if our board of directors has otherwise approved such accumulationof shares. In addition, any decision by our board of directors to sell, transfer or otherwise dispose of, directly and indirectly,all or substantially all of our assets to one or more third parties in any transaction or series of related transactions, includingthe sale of our principal Russian operating subsidiary, is subject to the prior approval of the holder of our priority share. Thepriority share does not carry any rights to control the management or operations of82 Table of Contentsour company, and its economic rights are limited to its pro rata entitlement to dividends and other distributions. Our articlesof association provide that the priority share may only be held by a party that is specifically nominated by our board ofdirectors for this purpose. The rights of the priority share would terminate if any law is adopted or amended in Russia thatrestricts 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 strengtheningcontrol over our company’s ownership structure and providing transparency into changes in share ownership. We believethat this structure allows us to avoid the dominance of any single group of investors. In addition, we believe that thismechanism 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 consideredthree principal criteria: the holder had to be controlled by the Russian government, the holder had to be public, and theholder could not have interests in the internet or media sectors that would conflict with the interests of our business. Ourboard also considered Sberbank to be an appropriate holder of the priority share in light of what our board believes to be itsrespected and professional management team. Because our board views the holder of the priority share as playing a valuablerole in contributing to the stability of our business and the transparency of our shareholder base, and because the priorityshare carries only an immaterial economic interest in our company, we issued the priority share for only nominalconsideration.Yandex.Money Joint VentureIn July 2013, we sold a 75 percent (less 1 ruble) interest in our Yandex.Money business to Sberbank for $60 millionin cash and entered into a joint venture arrangement with Sberbank in respect of the future operation of this business, whichcontinues under the Yandex.Money brand. Our joint venture agreement with Sberbank provides for standard minorityprotections and addresses corporate governance matters such as veto rights, deadlock mechanisms and rights of first refusaland co‑sale.Following the sale of the controlling interest and deconsolidation of Yandex.Money in July 2013, we retained anoncontrolling interest and significant influence over Yandex.Money’s business. We continue to use Yandex.Money forpayment processing and sublease to Yandex.Money part of our premises. The amount of revenues from subleasing and otherservices was RUB 91 million and RUB 106 million ($1.7 million) for the years ended December 31, 2015 and 2016,respectively. The amount of fees for online payment commissions was RUB 143 million and RUB 173 million ($2.9 million)for the years ended December 31, 2015 and 2016 respectively. As of December 31, 2015 and 2016, the amount of receivablesrelated to payment processing was RUB 27 million and RUB 47 million ($0.8 million), respectively. We believe that theterms of the agreements with Yandex.Money are comparable to the terms obtained in arm’s‑length transactions withunrelated similarly situated customers and suppliers.Advisory Fees; Lending ArrangementsIn December 2015, we engaged Sberbank CIB, an affiliate of Sberbank, as our financial advisor in connection withour proposed acquisition of a legal entity that will hold title to the office complex in central Moscow in which our Russianheadquarters are located. Pursuant to this engagement, we have paid Sberbank CIB advisory fees of $0.2 million. OnFebruary 19, 2016, we entered into a framework agreement with Krasnaya Roza 1875 Limited, a Cypriot company, orKR 1875, for the acquisition of certain buildings in the Krasnaya Roza office complex in central Moscow, in which theRussian headquarters of the Yandex group are located (the “Framework Agreement”). On September 7, 2016, we opted toterminate the Framework Agreement because of changing market conditions. Yandex plans to remain at the Red Rosethrough the end of the lease term in 2021 but may consider other options for when the lease term expiresLoans granted to related partiesIn 2016, we had loans outstanding in the aggregate principal amount of RUB 168 million ($2.8 million) to theCEOs of our business units, principally in connection with their purchase of equity interests in those subsidiaries. Theinterest rate on the loans is 8% per annum and they mature in 2019. Item 8. Financial Information.See the financial statements beginning on page F‑1.83 Table of ContentsDividendsWe do not have any present plan to pay cash dividends on our shares in the near term. Any future determination asto the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on thenexisting conditions, including our financial condition, operating results, 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 Aand Class B shares and the priority share. 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 B shares, we intend to repurchase all Class C sharesissued upon conversion of our Class B shares promptly following their issuance such that no dividends would be payable onour Class C shares. Cash dividends on our shares, if any, will be paid in U.S. dollars. Item 9. The Listing.MarketsOur Class A ordinary shares are currently listed on the NASDAQ Global Select Market, under the symbol “YNDX”.The following table sets forth the high and low closing sale prices on the NASDAQ Global Select Market for ourClass A ordinary shares for (1) the five most recent years, (2) each quarter of the two most recent full financial years and anyinterim period, and (3) the most recent six months. High Low Annual Highs and Lows $ $ 2016 23.41 11.80 2015 20.90 10.18 2014 44.22 16.82 2013 43.15 20.07 2012 27.30 16.66 Quarterly Highs and Lows First Quarter 2017 (through March 17) 24.66 20.43 Fourth Quarter 2016 22.13 17.61 Third Quarter 2016 23.41 20.31 Second Quarter 2016 23.08 15.05 First Quarter 2016 15.41 11.80 Fourth Quarter 2015 17.51 10.73 Third Quarter 2015 15.78 10.18 Second Quarter 2015 20.90 14.84 First Quarter 2015 18.42 14.12 Monthly Highs and Lows March 2017 (through March 17) 23.74 22.80 February 2017 24.66 22.50 January 2017 23.70 20.43 December 2016 21.06 18.42 November 2016 20.03 17.61 October 2016 22.13 18.93 September 2016 22.39 20.31 On March 17, 2017, the closing sale price per share on the NASDAQ Global Select Market was $23.62.In June 2014, our Class A ordinary shares were admitted to trading on Moscow Exchange (MOEX) and are currentlylisted in the Listing A Level 1, top quotation list on MOEX, under the symbol “YNDX”.84 Table of ContentsThe 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 recent full financial years and any interim period, and (2) the most recent six months. High Low RUB RUB Annual Highs and Lows 2016 1,506.00 912.50 2015 1,177.00 694.00 2014 (from July 1) 1,283.00 991.00 Quarterly Highs and Lows First Quarter 2017 (through March 17) 1,425.00 1,239.00 Fourth Quarter 2016 1,376.50 1,150.00 Third Quarter 2016 1,506.00 1,319.50 Second Quarter 2016 1,464.00 1,018.00 First Quarter 2016 1,133.90 912.50 Fourth Quarter 2015 1,147.00 704.00 Third Quarter 2015 903.00 694.00 Monthly Highs and Lows March 2017 (through March 17) 1,375.00 1,334.00 February 2017 1,425.00 1,312.00 January 2017 1,418.50 1,239.00 December 2016 1,292.00 1,197.50 November 2016 1,243.50 1,150.00 October 2016 1,376.50 1,186.00 September 2016 1,464.00 1,319.50 On March 17, 2017, the closing sale price per share on Moscow Exchange was RUB 1,354.00. Item 10. Additional Information.Memorandum and Articles of AssociationWe incorporate by reference into this Annual Report the description of our amended articles of associationcontained in our F‑1 registration statement (File No. 333‑173766) originally filed with the SEC on April 28, 2011, asamended. Our articles of association were amended as of May 21, 2012, May 22, 2013, May 23, 2014, May 22, 2015 and 1June, 2016. Such amendments reduced the number of authorized shares upon the conversion of our Class B shares into ClassA shares or were technical in nature to conform with changes in the requirements of Dutch law.Material ContractsConvertible debtWe issued and sold $690 million in aggregate principal amount of 1.125% convertible senior notes due 2018, toqualified institutional buyers in reliance on Rule 144A under the United States Securities Act of 1933, as amended, intransactions 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 Bankof New York Mellon, a New York banking corporation, as trustee, which includes the terms and conditions upon which thenotes are to be authenticated, issued and delivered. The notes are convertible into cash, Class A shares of Yandex or acombination of cash and Class A shares, at our election, based on an initial conversion rate of 19.4354 Class A shares per$1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $51.45 per Class Ashare, subject to adjustment on the occurrence of certain events. Prior to June 15, 2018, the notes are convertible only uponthe occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on thebusiness 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 ofeach year, beginning on June 15, 2014. The notes mature on December 15, 2018, unless earlier85 Table of Contentsrepurchased, redeemed or converted in accordance with their terms. The notes are senior unsecured obligations of theCompany and we do not have the right to redeem the notes prior to maturity, except in connection with certain changes intax laws.The net proceeds from the convertible note offering were approximately $683 million, after deducting the initialpurchasers’ discount and estimated offering expenses.In 2014, 2015 and 2016, we repurchased an aggregate of $356.8 million principal amount of the convertible notesfor an aggregate of $315.5 million in the open market.Framework Agreement with Krasnaya Roza 1875 LimitedOn February 19, 2016, we entered into a framework agreement with Krasnaya Roza 1875 Limited, a Cypriotcompany, or KR 1875, for the acquisition of certain buildings in the Krasnaya Roza office complex in central Moscow, inwhich the Russian headquarters of the Yandex group are located (the “Framework Agreement”). On September 7, 2016, weopted to terminate the Framework Agreement because of changing market conditions. The Framework Agreement allowed forYandex to terminate the Framework Agreement at any time prior to closing. In the event of the termination of the agreement,the Framework Agreement stipulated that Yandex will reimburse KR1875 for certain fees and expense incurred in connectionwith the transaction, up to a maximum of RUB 45 million (approximately $0.7 million). Yandex believes that after thereimbursement of these costs to KR1875, it remained in the company’s and stockholders’ interest to terminate the FrameworkAgreement. Yandex plans to remain at the Red Rose through the end of the lease term in 2021 but may consider otheroptions for when the lease term expires.Exchange ControlsUnder existing laws of the Netherlands, there are no exchange controls applicable to the transfer to persons outsideof the Netherlands of dividends or other distributions with respect to, or of the proceeds from the sale of, shares of a Dutchcompany.TaxationTaxation in the NetherlandsGeneralThe information set out below is a general summary of the material Dutch tax consequences in connection with theacquisition, ownership and transfer of our Class A shares. The summary does not purport to be a comprehensive descriptionof all the Dutch tax considerations that may be relevant for a particular holder of our Class A shares, who may be subject tospecial tax treatment under any applicable law, and this summary is not intended to be applicable in respect of all categoriesof holders of the Class A shares. In particular, this summary is not applicable in respect of any holder who is, is deemed to beor is treated as a resident of the Netherlands for Dutch tax purposes nor to a holder that holds, alone or together with hispartner, whether directly or indirectly, the ownership of, or certain other rights over, shares representing 5% or more of ourtotal issued and outstanding capital (or the issued 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 our total issued and outstanding capital (or the issuedand outstanding capital of any class of shares) or the ownership of, or certain other rights over, profit participating certificatesthat relate to 5% or more of the annual profit and/or to 5% or more of our liquidation proceeds. Such interest in our Class Ashares is further referred to as a Substantial Interest (aanmerkelijk belang).Please note that under Dutch tax law an individual is considered as a holder of Class A shares as well 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 Act2001, with respect to property that has been segregated, for instance in a trust or a foundation.The summary is based upon the tax laws of the Netherlands as in effect on the date of this Annual Report, as well asregulations, rulings and decisions of the Netherlands and its taxing and other authorities available on or before such date andnow in effect. All references in this summary to the Netherlands and Netherlands law are to the European part of the Kingdomof The Netherlands and its law, respectively, only. All of the foregoing is subject to change, which86 Table of Contentscould apply retroactively and could affect the continuing validity of this summary. As this is a general summary, werecommend that investors or shareholders consult with their own tax advisors as to the Dutch or other tax consequences ofthe acquisition, ownership and transfer of our Class A shares, including, in particular, the application to their particularsituations of the tax considerations discussed below.The following summary does not address the tax consequences arising in any jurisdiction other than the Netherlandsin 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 purposesof tax treaties concluded by the Netherlands, and this summary so assumes. This summary further assumes that the holders ofClass A shares will be treated for Dutch tax purposes as the absolute beneficial owners of those Class A shares and anydividends (as defined below) received or realized with respect to such shares.Dividend Withholding TaxGeneralDividends paid on the Class A shares to a holder of such shares are generally subject to Dutch dividend withholdingtax 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 notrecognized for Dutch dividend withholding tax purposes;·liquidation proceeds, proceeds of redemption of shares or, generally, consideration for the repurchase of sharesin excess of the average paid‑in capital 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 theextent that it does not appear that a contribution to the capital recognized for Dutch dividend withholding taxpurposes was made or will be made; and·partial repayment of paid‑in capital, recognized for Dutch dividend withholding tax purposes, if and to theextent that there are net profits (zuivere winst), within the meaning of the Dutch Dividend Withholding Tax Act1965 (Wet op de dividendbelasting 1965), unless the general meeting of our shareholders has resolved inadvance to make such a repayment and provided that the par value of the shares concerned has been reduced bya 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 tothe Dutch tax authorities; the dividend withholding 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 theNetherlands has concluded a treaty for the avoidance of double taxation or (b) in Bonaire, St. Eustatius, Saba, Aruba, Curacaoor St. Maarten, in which subsidiary we hold at least 25% of the nominal paid‑up capital or if the relevant tax treaty thereinprovides, we hold at least 25% of the voting rights, which distribution is exempt from Dutch corporate income tax and hasbeen subject to a foreign withholding tax of at least 5%, we are not required to transfer to the Dutch tax authorities the fullamount of Dutch dividend withholding tax in respect of dividends distributed by our company. The amount that does nothave 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 ourcompany received from qualifying foreign subsidiaries in the calendar year in which our company distributes the dividends(up to the moment of such dividend distribution) and the two previous calendar years; further limitations and conditionsapply.The amount of Dutch withholding tax that we may retain reduces the amount of dividend withholding tax that weare required to pay to the Dutch tax authorities, but does not reduce the amount of tax we are required to withhold fromdividends paid to a holder of our Class A shares. Upon request, a holder of our Class A shares will be notified by ourcompany of the amount of the Dutch withholding tax that was retained by us.87 Table of ContentsNon‑residents of the Netherlands (including but not limited to U.S. holders)The following is a description of the material Dutch tax consequences of holders of our Class A shares who undercertain circumstances may not be subject to the above described 15% Dutch dividend withholding tax.Entities (i) that are resident in another EU Member State, in a State of the European Economic Area (the “EEA”)i.e. Iceland, Norway and Liechtenstein, or a country outside the EU/EEA which has an arrangement for the exchange of taxinformation with the Netherlands; and (ii) that are not subject to taxation by reference to profits in such State, in principlehave the possibility to obtain a full refund of Dutch dividend withholding tax, provided such entities would not have beensubject 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 asreferred to in the Dutch Corporate Income Tax Act 1969, and with respect to entities resident in a country outside theEU/EEA which has an arrangement for the exchange of tax information with the Netherlands, provided such entities holdtheir Class A shares as a portfolio investment, i.e. such shares are not held with a view to the establishment or maintenance oflasting and direct economic links between such holder of Class A shares and our company, and these shares do not allowsuch holder to effectively participate in the management or control of our company.Further, a holder of Class A shares who is resident in another EU Member State or in a State of the EEA i.e. Iceland,Norway and Liechtenstein, in principle has the possibility to obtain a refund of Dutch dividend withholding tax, providedthat (i) such dividends are not taxable with the holder of Class A shares for personal income tax purposes or corporate incometax purposes and (ii) insofar the Dutch dividend withholding tax exceeds the amount of personal income tax or corporateincome tax that would have been due had the holder of Class A shares been resident in the Netherlands, and with respect to aholder of Class A shares resident in a country outside the EU/EEA which has an arrangement for the exchange of taxinformation with the Netherlands, provided the Class A shares are held by such holder as a portfolio investment, i.e. suchshares are not held with a view to the establishment or maintenance of lasting and direct economic links between such holderof Class A shares and our company, and these shares do not allow such holder to effectively participate in the management orcontrol 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 ofthe 1992 Double Taxation Treaty between the United States and the Netherlands (“U.S. holder”), as amended most recentlyby the Protocol signed March 8, 2004 (the “Treaty”) will generally be subject to Dutch dividend withholding tax at the rateof 15% unless such U.S. holder is an exempt pension trust as described in article 35 of the Treaty, or an exempt organizationas described in article 36 of the Treaty.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 an exemption from Dutch withholding tax and may generally claim (i) in the case of an exemptpension trust full exemption at source by timely filing two completed copies of form IB 96 USA signed by the U.S. holderaccompanied with U.S. form 6166 (as issued by the U.S. Internal Revenue Service and valid for the relevant tax year) or (ii) inthe case of either an exempt pension trust or an exempt organization a full refund by filing through the withholding agent asmentioned in article 9 of the Dutch Dividend Withholding Tax Act 1965 (which is generally the company) one of thefollowing forms signed by the U.S. holder within three years after the end of the calendar year in which the withholding taxwas levied:·if the U.S. holder is an exempt pension trust as described in article 35 of the Treaty: two completed copies ofForm IB 96 USA accompanied with U.S. Form 6166 as issued by the U.S. Internal Revenue Service valid for therelevant tax year and·if the U.S. holder is an exempt organization as described in article 36 of the Treaty: two completed copies ofForm IB 95 USA accompanied with U.S. Form 6166 as issued by the U.S. Internal Revenue Service, valid for therelevant tax year.88 Table of ContentsTaxes on Income and Capital GainsGeneralThe description of taxation set out in this section of this Annual Report is not intended for any holder of Class Ashares who is:·an individual for whom the income or capital gains derived from the Class A shares are attributable toemployment activities the income from which is taxable in the Netherlands; or·an individual who or an entity which holds, or is deemed to hold, a Substantial Interest in our company (asdefined above).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 corporateincome tax (other than dividend withholding tax described above) on the income and capital gains derived from the Class Ashares, provided that:·such Non‑Resident of the Netherlands does not derive profits from an enterprise or deemed enterprise, whetheras an entrepreneur (ondernemer) or pursuant to a co‑entitlement to the net worth of such enterprise (other thanas 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 andto which enterprise or part of an enterprise, as the case may be, the Class A shares are attributable or deemedattributable;·in the case of a Non‑Resident of the Netherlands who is an individual, (a) such individual does not carry outany activities in the Netherlands with respect to the Class A shares that exceed ordinary active assetmanagement (normaal vermogensbeheer), (b) the benefits derived from such Class A shares are not intended asremuneration for activities performed by a holder of Class A shares or by a person connected to such holder asmeant by article 3.92b paragraph 5 of the Dutch Income Tax Act 2001 and (c) such individual does not deriveincome or capital gains from the Class A shares that are taxable as benefits from “other miscellaneousactivities” in the Netherlands (resultaat uit overige werkzaamheden 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 profitsof an enterprise effectively managed in the Netherlands, nor co‑entitled to the net worth of such enterprise,other than by way of the holding of securities, to which enterprise the Class A shares or payments in respect ofthe 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 sharein the profits of an enterprise effectively managed in the Netherlands, other than by way of the holding ofsecurities or, through an employment contract, to which enterprise the Class A shares or payments in respect ofClass 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 Dutchenterprise or deemed enterprise, will generally not be subject to Dutch taxes on any capital gain realized on the disposal ofsuch Class A shares.Gift, Estate or Inheritance TaxesNo Dutch gift, estate or inheritance taxes will arise on the transfer of Class A shares by way of a gift by, or on thedeath of, a holder of Class A shares who is neither resident nor deemed to be resident in the Netherlands, unless in the case ofa gift of the Class A shares by an individual who at the date of the gift was neither resident nor deemed to be resident in theNetherlands (i) such individual dies within 180 days after the date of the gift, while being resident or deemed to be residentin the Netherlands; or (ii) the gift of the Class A shares is made under a condition precedent and the holder of these shares isresident, or is deemed to be resident, in the Netherlands at the time the condition is fulfilled.89 Table of ContentsFor purposes of Dutch gift, estate and inheritance taxes, an individual who holds the Dutch nationality will bedeemed to be resident in the Netherlands if he or she has been resident in the Netherlands at any time during the ten yearspreceding the date of the gift or his or her death. Additionally, for purposes of Dutch gift tax, an individual not holding theDutch nationality will be deemed to be resident in the Netherlands if he or she has been resident in the Netherlands at anytime during the twelve months preceding the date of the gift. Applicable tax treaties may override deemed residency.Value‑Added TaxThere 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 fees payable in respect of services not exempt from Dutch value added tax).Other Taxes and DutiesThere is no Dutch registration tax, capital tax, customs duty, stamp duty or any other similar documentary tax orduty other than court fees payable in the Netherlands by a holder of Class A shares in respect of or in connection with theexecution, delivery and enforcement by legal proceedings (including any foreign judgment in the courts of the Netherlands)of the Class A shares.ResidenceOther than as set forth above, a holder of Class A shares will not become or be deemed to become a resident of theNetherlands, nor will a holder of Class A shares otherwise become subject to taxation in the Netherlands, solely by reason ofholding the Class A shares.Taxation in the United StatesThe following summary of the material U.S. federal income tax consequences of the acquisition, ownership anddisposition of our Class A shares is based upon current law and does not purport to be a comprehensive discussion of all thetax considerations that may be relevant to a decision to purchase our Class A shares. This summary is based on currentprovisions of the Internal Revenue Code, existing, final, temporary and proposed United States Treasury Regulations,administrative rulings and judicial decisions, in each case as available on the date of this Annual Report. All of the foregoingare subject to change, 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, ofClass A shares. This summary addresses only the U.S. federal income tax considerations for U.S. holders that hold the Class Ashares as capital assets. This summary does not address all U.S. federal income tax matters that may be relevant to a particularU.S. holder, nor does it address any state, local or foreign tax matters or matters relating to any U.S. federal tax other than theincome tax. Each investor should consult its own professional tax advisor with respect to the tax consequences of thepurchase, ownership and disposition of the Class A shares. This summary does not address tax considerations applicable to aholder of Class A shares that may be subject 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 orsimilar transaction;90 Table of Contents·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.Further, this summary does not address alternative minimum tax consequences or indirect effects on the holders ofequity interests in entities that own our Class A shares. In addition, this discussion does not consider the U.S. taxconsequences 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. federalincome 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 ororganized in or under the laws of the 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 oneor more “United States persons,” within the meaning of the Internal Revenue Code, have the authority tocontrol 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 thepartner and upon the activities of the partnership.We will not seek a ruling from the U.S. Internal Revenue Service (“IRS”) with regard to the U.S. federal income taxtreatment of an investment in our Class A shares, and we cannot assure you that that the IRS will agree with the conclusionsset forth below.Distributions. Subject to the discussion under “Passive Foreign Investment Company Considerations” below, thegross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually orconstructively received by a U.S. holder with respect to Class A shares will be taxable to the U.S. holder as a dividend to theextent paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles.Distributions in excess of our current and accumulated earnings and profits will be non‑taxable to the U.S. holder to theextent of, and will be applied against and reduce, the U.S. holder’s adjusted tax basis in the Class A shares. Distributions inexcess of our current and accumulated earnings and profits 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 not calculate our earnings and profitsunder 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 of property other than cash will be the fair market value of that property on the date ofdistribution. The U.S. holder will not be eligible for any dividends‑received deduction in respect of the dividend otherwiseallowable 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 reducedincome tax rate is applicable to dividends paid by “qualified foreign corporations” to such non‑corporate U.S. holders thatmeet the applicable requirements, including a minimum holding period (generally, at least 61 days during the 121‑dayperiod beginning 60 days before the ex‑dividend date). We believe that we are a qualified foreign corporation under theInternal Revenue Code. Accordingly, dividends paid by us to non‑corporate U.S. holders with respect to Class A shares thatmeet the minimum holding period and other requirements are 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 we are treated, for the tax yearin which the dividends are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal incometax purposes, as discussed below. Dividends paid by us that are not treated as91 Table of Contentsqualified dividends will be taxable at the normal (and currently higher) ordinary income tax rates, except to the extent thatthey are taxable otherwise if we are a passive foreign investment company as described below.Dividends received by a U.S. holder with respect to Class A shares generally will be treated as foreign source incomefor the purposes of calculating that holder’s foreign tax credit limitation. Subject to applicable conditions and limitations,and subject to the discussion in the next two paragraphs, any Dutch income tax withheld on dividends may be deducted fromtaxable income or credited against a U.S. holder’s U.S. federal income tax liability. The limitation on foreign taxes eligiblefor 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 anonexempt trust is generally subject to a 3.8% 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 “modified adjusted 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 the individual’s U.S. tax filingstatus). A U.S. holder’s net investment income generally will include, among other things, dividends on, and gains from thesale or other taxable disposition of, our Class A shares, unless (with certain exceptions) those dividends or gains are derivedin the ordinary course of a trade or business. Net investment income may be reduced by deductions properly allocablethereto; however, the U.S. foreign tax credit may not be available to reduce the surtax.Upon making a distribution to shareholders, we may be permitted to retain a portion of the amounts withheld asDutch dividend withholding tax. See “—Taxation in the Netherlands—Dividend Withholding Tax—General.” The amountof Dutch withholding tax that we may retain reduces the amount of dividend withholding tax that we are required to pay tothe Dutch tax authorities but does not reduce the amount of tax we are required to withhold from dividends 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 theDutch tax 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. federalincome tax purposes upon the sale or exchange of Class A shares in an amount equal to the difference between the U.S. dollarvalue of the amount realized from such sale or exchange and the U.S. holder’s tax basis for those Class A shares. Subject tothe discussion under “Passive Foreign Investment Company Considerations” below, this gain or loss will be capital gain orloss and will generally be treated as from sources within the United States. Capital gain or loss will be long‑term capital gainor loss if the 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 lossesincurred upon the sale or other disposition of capital assets is subject to limitations.Passive foreign investment company considerations. A corporation organized outside the United States generallywill be classified as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes in any taxable yearin which, after applying the applicable look‑through rules, either: (i) at least 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 income or are held for theproduction of passive income. In arriving at this calculation, a pro rata portion of the income and assets of each corporationin which we own, directly or indirectly, at least a 25% interest by value, must be taken into account. Passive income for thispurpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. Webelieve that we were not a PFIC for the 2014 and 2015 tax years. Based on estimates of our gross income and the averagevalue of our gross assets, and 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 year and 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 income and assets and the value ofour assets for such year, and because this is a factual determination made annually after the end of each taxable year, therecan 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 mayfluctuate considerably. If we were a PFIC for any taxable year during which a U.S. holder held Class A shares, gainrecognized by the U.S. holder on a sale or other disposition (including a pledge) of the Class A shares would be allocatedratably over the U.S. holder’s holding period for the Class A shares. The amounts allocated to the taxable year of the sale orother disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to eachother taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for thattaxable year, and an92 Table of Contentsinterest charge would be imposed on the resulting tax liability for that taxable year. Similar rules would apply to the extentany distribution in respect of Class A shares exceeds 125% of the average of the annual distributions on Class A sharesreceived by a U.S. holder during the preceding three years or the holder’s holding period, whichever is shorter. Elections maybe available that would result in alternative treatments (such as a mark‑to‑market treatment) of the Class A shares. In addition,if we are considered a PFIC for the current taxable year or any future taxable year, U.S. holders will be required to file annualinformation returns for such year, whether or not the U.S. holder disposed of any Class A shares or received any distributionsin respect of Class A shares during such year.Backup Withholding and Information Reporting. U.S. holders generally will be subject to information reportingrequirements with respect to dividends on Class A shares and on the proceeds from the sale, exchange or disposition ofClass A shares that are paid within the United States or through U.S.‑related financial intermediaries, unless the U.S. holder isan “exempt recipient.” In addition, certain U.S. holders who are individuals may be required to report to the IRS informationrelating to their ownership of the Class A shares, subject to certain exceptions (including an exception for shares held in anaccount maintained by a U.S. financial institution). U.S. holders may be subject to backup withholding (currently at 28%) ondividends and on the proceeds from the sale, exchange or disposition of Class A shares that are paid within the United Statesor through U.S.‑related financial intermediaries, unless the U.S. holder provides a taxpayer identification number and a dulyexecuted IRS Form W‑9 or otherwise establishes an exemption. Backup withholding is not an additional tax and the amountof 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 DisplayWe are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information withthe SEC. Specifically, we are required to file annually a Form 20‑F no later than four months after the close of each fiscalyear, which is December 31. Such reports and other information, when so filed, may be accessed at www.sec.gov/edgar or atir.yandex.com/sec.cfm. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing thefurnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders areexempt from the reporting and short‑swing profit recovery provisions contained in Section 16 of the Exchange Act. Item 11. Quantitative and Qualitative Disclosures About Market Risk.See “Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures About MarketRisk.” 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 ProceduresThe company’s management, with the participation of the company’s chief executive officer and chief financialofficer, evaluated the effectiveness of the company’s disclosure controls and procedures as of December 31, 2016. The term“disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, means controlsand other procedures of a company that are designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the company’s management, including its principal executiveand principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Managementrecognizes that any controls and procedures, no matter how well designed and93 Table of Contentsoperated, can provide only reasonable assurance of achieving their objectives and management necessarily applies itsjudgment in evaluating the cost‑benefit relationship of possible controls and procedures. Based on the evaluation of thecompany’s disclosure controls and procedures as of December 31, 2016, the company’s chief executive officer and chieffinancial officer concluded that, as of such date, the company’s disclosure controls and procedures were effective at thereasonable assurance level.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate “internal control over financialreporting,” as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act. This rule defines internal control overfinancial reporting as a process designed by, or under the supervision of, a company’s chief executive officer and chieffinancial officer and effected by its board of directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements 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) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.Management assessed the design and operating effectiveness of our internal control over financial reporting as ofDecember 31, 2016. This assessment was performed under the direction and supervision of our chief executive officer andchief financial officer, and based on criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, we concluded that as ofDecember 31, 2016, our internal control over financial reporting was effective.No change in the company’s internal control over financial reporting occurred during the fiscal year endedDecember 31, 2016 that has materially affected, or is reasonably likely to materially affect, the company’s internal controlover financial reporting.The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by ZAODeloitte & Touche CIS, our independent registered public accounting firm. Their report may be found below.94 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo 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”) asof December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible formaintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal controlover financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Our responsibility 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 require that we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for ouropinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, thecompany’s principal executive and principal financial officers, or persons performing similar functions, and effected by thecompany’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, ordisposition of 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 ofcollusion or improper management override of controls, material misstatements due to error or fraud may not be prevented ordetected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls may become inadequate because of changes 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 reportingas of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2016 of theCompany and our report dated March 22, 2017 expressed an unqualified opinion on those financial statements and includedan explanatory paragraph regarding the translation of Russian ruble amounts into U.S. dollar amounts presented solely forthe convenience of readers in the United States of America./s/ ZAO Deloitte & Touche CISMoscow, RussiaMarch 22, 201795 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 determinedby 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 ofthe company and any of the company’s direct and indirect subsidiaries. Our code of ethics is posted on our company websiteat: ir.yandex.com/documents.cfm.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 publicaccounting firm, or its affiliates billed to us for each of the last two fiscal years. 2015 2016 (RUB in million) Audit Fees(1) 35.5 47.0 Audit Related Fees(2) 4.0 0.2 Tax Fees(3) 9.2 5.7 All Other Fees — — Total Fees 48.7 52.9 (1)Audit fees for 2016 and 2015 were for professional services provided for the review of interim financial statements andthe audit of our consolidated annual financial statements included in our Annual Reports on Form 20‑F or servicesnormally provided 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 theaudit or 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 ourrevised employee incentive plan.Pre‑Approval Policies for Non‑Audit ServicesIn 2011, we established a policy pursuant to which we will not engage our auditors to perform any non‑auditservices unless the audit committee pre‑approves the service. The audit committee pre‑approved all of the non‑audit servicesperformed for us by Deloitte & Touche during 2016. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.None. Item 16F. Changes in Registrant’s Certifying AccountantNone. Item 16G. Corporate Governance.The Sarbanes Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreignprivate issuers, including our company, to comply with various corporate governance practices. In addition, NASDAQ rulesprovide that foreign private issuers may follow home country practice in lieu of the NASDAQ corporate governancestandards, subject to certain exceptions and except to the extent that such exemptions would be contrary to96 Table of ContentsU.S. federal securities laws. The home country practices followed by our company in lieu of NASDAQ rules are describedbelow:·We do not follow NASDAQ’s quorum requirements applicable to meetings of shareholders. In accordance withDutch law and generally accepted business practice, our articles of association do not provide quorumrequirements generally applicable to general meetings of shareholders.·We do not follow NASDAQ’s requirements regarding the provision of proxy statements for general meetings ofshareholders. Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation ofproxies is not a generally accepted business practice in the Netherlands. We do intend to provide shareholderswith an agenda and other relevant documents for the general meeting of shareholders.We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicablecorporate governance requirements of the Sarbanes Oxley Act, the rules adopted by the SEC and NASDAQ’s listingstandards. As a Dutch company listed on a government recognized stock exchange, we are required to apply the provisions ofthe Dutch Corporate Governance Code, or explain any deviation from the provisions of such code in our Dutch AnnualReport required by Dutch law. 97 Table of ContentsYANDEX N.V.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm F‑2Consolidated Balance Sheets as of December 31, 2015 and 2016 F‑3Consolidated Statements of Income for the Years Ended December 31, 2014, 2015 and 2016 F‑4Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2015 and 2016 F‑5Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2015 and 2016 F‑6Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2015 and 2016 F‑7Notes to the Consolidated Financial Statements F‑8 F-1 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, 2015 and 2016, and the related consolidated statements of income, comprehensive income,cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2016. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial 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 require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial positionof Yandex N.V. and subsidiaries as of December 31, 2015 and 2016, and the results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2016 in conformity with accounting principles generallyaccepted 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 internal control over financial reporting as of December 31, 2016, based on the criteriaestablished in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated March 22, 2017, expressed an unqualified opinion on the Company’s internalcontrol over financial reporting.Our audits also comprehended the translation of Russian ruble amounts into U.S. dollar amounts and, in ouropinion, such translations have been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts arepresented solely for the convenience of readers in the United States of America./s/ ZAO Deloitte & Touche CISMoscow, RussiaMarch 22, 2017 F-2 Table of ContentsYANDEX N.V.CONSOLIDATED BALANCE SHEETS(In millions of Russian rubles (“RUB”) and U.S. dollars (“$”), except share and per share data)d As of December 31, Notes 2015 2016 2016 RUB RUB $ ASSETS Current assets: Cash and cash equivalents 5 24,238 28,232 465.4 Term deposits 15,150 31,769 523.7 Investments in debt securities 5 2,915 3,033 50.0 Accounts receivable, net 5 5,586 7,741 127.6 Prepaid expenses 1,505 1,481 24.6 Other current assets 5 3,835 2,714 44.7 Total current assets 53,229 74,970 1,236.0 Property and equipment, net 8 20,860 18,817 310.2 Intangible assets, net 9 5,988 5,514 90.9 Goodwill 9 8,581 8,436 139.1 Long-term prepaid expenses 1,488 1,385 22.8 Restricted cash, non-current 5 533 442 7.3 Term deposits, non-current 18,399 — — Investments in non-marketable equity securities 5 1,122 1,513 24.9 Deferred tax assets 10 226 662 10.9 Other non-current assets 5 1,392 2,369 39.1 TOTAL ASSETS 111,818 114,108 1,881.2 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities 5 6,994 9,532 157.2 Taxes payable 2,800 2,963 48.8 Deferred revenue 1,875 2,127 35.1 Total current liabilities 11,669 14,622 241.1 Convertible debt 11 27,374 18,750 309.1 Deferred tax liabilities 10 1,552 1,040 17.1 Other accrued liabilities 1,126 1,104 18.2 Total liabilities 41,721 35,516 585.5 Commitments and contingencies 12 Redeemable noncontrolling interests 14 — 1,506 24.8 Shareholders’ equity: Priority share: €1 par value; 1 share authorized, issued and outstanding 13 — — — Preference shares: €0.01 par value; 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); sharesauthorized (Class A: 1,000,000,000, Class B: 61,295,523 and 46,997,887 and Class C:61,295,523 and 46,997,887); shares issued (Class A: 282,161,148 and 285,019,019, ClassB: 47,895,605 and 45,037,734, and Class C: 12,000,000 and 560,235, respectively); sharesoutstanding (Class A: 271,356,566 and 277,579,206, Class B: 47,895,605 and 45,037,734,and Class C: nil) 13 75 284 4.7 Treasury shares at cost (Class A: 10,804,582 and 7,439,813, respectively) 13 (12,531) (8,368) (138.0) Additional paid-in capital 17,257 16,579 273.3 Accumulated other comprehensive income 2, 5 3,099 896 14.9 Retained earnings 62,197 67,695 1,116.0 Total shareholders’ equity 70,097 77,086 1,270.9 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 111,818 114,108 1,881.2 The accompanying notes are an integral part of the consolidated financial statements. F-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) Year ended December 31, Notes 2014 2015 2016 2016 RUB RUB RUB $ Revenues 16 50,767 59,792 75,925 1,251.7 Operating costs and expenses: Cost of revenues(1) 14,336 16,810 19,754 325.7 Product development(1) 8,842 13,421 15,832 261.0 Sales, general and administrative(1) 7,782 11,601 17,885 294.8 Depreciation and amortization 4,484 7,791 9,607 158.4 Goodwill impairment 9 — 576 — — Total operating costs and expenses 35,444 50,199 63,078 1,039.9 Income from operations 15,323 9,593 12,847 211.8 Interest income, net (including interest expense of1,091, 1,293 and 1,208 ($19.9)) 11 856 1,744 1,655 27.3 Other income/(loss), net 5 6,296 2,259 (3,395) (56.0) Income before income taxes 22,475 13,596 11,107 183.1 Provision for income taxes 10 5,455 3,917 4,324 71.3 Net income 17,020 9,679 6,783 111.8 Net loss attributable to noncontrolling interests — — 15 0.2 Net income attributable to Yandex N.V. 17,020 9,679 6,798 112.0 Net income per Class A and Class B share: Basic 3 53.30 30.39 21.19 0.35 Diluted 3 52.27 29.90 20.84 0.34 Weighted average number of Class A and Class Bshares outstanding: Basic 3 319,336,782 318,541,887 320,788,967 320,788,967 Diluted 3 325,610,277 323,713,437 326,136,949 326,136,949 (1)These balances exclude depreciation and amortization expenses, which are presented separately, and includeshare‑based compensation expenses of: Cost of revenues 101 168 193 3.2Product development 780 1,860 2,238 36.9Sales, general and administrative 329 690 991 16.3 The accompanying notes are an integral part of the consolidated financial statements. F-4 Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions of Russian rubles and U.S. dollars) Year ended December 31, Notes 2014 2015 2016 2016 RUB RUB RUB $ Net income 17,020 9,679 6,783 111.8 Foreign currency translation adjustment: Foreign currency translation adjustment, net of tax of nil (1,019) 2,076 (2,100) (34.6) Reclassification adjustment, net of tax of nil 5 — — (103) (1.7) Foreign currency translation adjustment, net of tax of nil (1,019) 2,076 (2,203) (36.3) Total other comprehensive (loss)/income (1,019) 2,076 (2,203) (36.3) Total comprehensive income 16,001 11,755 4,580 75.5 Total comprehensive loss attributable to noncontrollinginterests — — 15 0.2 Total comprehensive income attributable to Yandex N.V. 16,001 11,755 4,595 75.7 The accompanying notes are an integral part of the consolidated financial statements. F-5 Table of ContentsYANDEX N.V.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions of Russian rubles and U.S. dollars) Year ended December 31, Notes 2014 2015 2016 2016 RUB RUB RUB $ CASH FLOWS FROM OPERATING ACTIVITIES: Net income 17,020 9,679 6,783 111.8 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 3,480 6,197 7,655 126.2 Amortization of intangible assets 1,004 1,594 1,952 32.2 Amortization of debt discount and issuance costs 811 967 911 15.0 Share-based compensation expense 1,210 2,718 3,422 56.4 Deferred income taxes 115 (188) (864) (14.2) Foreign exchange (gains)/losses (6,553) (1,903) 3,834 63.2 Gain from sale of equity securities — — (157) (2.6) Impairment of investment in equity securities 700 — — — Goodwill impairment — 576 — — Gain from repurchases of convertible debt (548) (310) (53) (0.9) Other 38 (83) (40) (0.6) Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable, net (714) (1,763) (2,385) (39.3) Prepaid expenses and other assets (3,069) 888 276 4.6 Accounts payable and accrued liabilities 1,817 1,160 3,817 62.9 Deferred revenue 235 44 298 4.9 Net cash provided by operating activities 15,546 19,576 25,449 419.6 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchases of property and equipment and intangible assets (9,679) (13,045) (9,625) (158.7) Proceeds from sale of property and equipment 132 95 177 2.9 Acquisitions of businesses, net of cash acquired 4 (6,360) (398) — — Investments in non-marketable equity securities (45) (110) (491) (8.1) Proceeds from sale of equity securities 4 120 — — — Investments in debt securities (2,546) (2,564) (3,159) (52.1) Proceeds from maturity of debt securities 575 3,426 2,525 41.6 Investments in term deposits (17,157) (41,760) (70,430) (1,161.1) Maturities of term deposits 7,234 42,682 68,447 1,128.4 Loans granted (207) (60) (550) (9.0) Escrow cash deposit 4 (656) 58 — — Net cash used in investing activities (28,589) (11,676) (13,106) (216.1) CASH FLOWS USED IN FINANCING ACTIVITIES: Proceeds from exercise of share options 191 168 431 7.1 Proceeds from issuance of convertible debt 11 2,981 — — — Repurchases of convertible debt 11 (6,414) (6,096) (5,397) (89.0) Payment of debt issuance costs 11 (42) — — — Repurchases of ordinary shares (8,423) — — — Payment for contingent consideration — (124) (152) (2.5) Other financing activities — 29 97 1.6 Net cash used in financing activities (11,707) (6,023) (5,021) (82.8) Effect of exchange rate changes on cash and cash equivalents 9,001 4,716 (3,328) (54.9) Net change in cash and cash equivalents (15,749) 6,593 3,994 65.8 Cash and cash equivalents at beginning of period 33,394 17,645 24,238 399.6 Cash and cash equivalents at end of period 17,645 24,238 28,232 465.4 Supplemental disclosure of cash flow information: Cash paid for income taxes 4,544 4,861 4,531 74.7 Cash paid for acquisitions 4 6,567 398 — — Interest paid 307 322 264 4.4 Non-cash investing activities: Change in accounts payable for property and equipment 643 (162) (230) (3.8) Fair value of contingent consideration included in purchase price at acquisition 4 165 341 — — The accompanying notes are an integral part of the consolidated financial statements.F-6 YANDEX N.V.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(In millions of Russian rubles and U.S. dollars, except share and per share data) Priority Share Ordinary Shares Accumulated Redeemable Issued and Issued and Treasury Additional Other non- Outstanding Outstanding shares at Paid-In Comprehensive Retained controlling Shares Amount Shares Amount cost Capital Income/(Loss) Earnings Total interests RUB RUB RUB RUB RUB RUB RUB RUBBalance as of January 1, 2014 1 — 323,655,509 242 (6,886) 15,701 2,042 35,498 46,597 —Share-based compensationexpense — — — — — 1,210 — — 1,210 —Exercise of share options(Note 15) — — 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, includingreclassification — — — — — — (1,019) — (1,019) —Net income — — — — — — — 17,020 17,020 —Balance as ofDecember 31, 2014 1 — 317,643,670 182 (14,179) 16,192 1,023 52,518 55,736 —Share-based compensationexpense — — — — — 2,718 — — 2,718 —Exercise of share options(Note 15) — — 1,608,501 — — 166 — — 166 —Class B shares conversion — — — (107) — 107 — — — —Reissue of shares for optionsexercised — — — — 1,648 (1,648) — — — —Repurchase of convertible debt — — — — — (307) — — (307) —Windfall tax benefit — — — — — 29 — — 29 —Foreign currency translationadjustment — — — — — — 2,076 — 2,076 —Net income — — — — — — — 9,679 9,679 —Balance as ofDecember 31, 2015 1 — 319,252,171 75 (12,531) 17,257 3,099 62,197 70,097 —Share-based compensationexpense — — — — — 3,422 — — 3,422 —Exercise of share options(Note 15) — — 3,364,769 — — 435 — — 435 —Tax withholding related toexercise of share awards — — — — — (24) — — (24) —Class B shares conversion — — — 209 — (209) — — — —Reissue of shares for optionsexercised — — — — 4,163 (4,163) — — — —Repurchase of convertible debt — — — — — (113) — — (113) —Windfall tax benefit — — — — — (29) — — (29) —Foreign currency translationadjustment — — — — — — (2,203) — (2,203) —Net income / (loss) — — — — — — — 6,798 6,798 (15)Decrease in ownership insubsidiaries — — — — — 3 — — 3 221Change in redemption value ofredeemable noncontrollinginterests — — — — — — — (1,300) (1,300) 1,300Balance as ofDecember 31, 2016 1 — 322,616,940 284 (8,368) 16,579 896 67,695 77,086 1,506Balance as ofDecember 31, 2016, $ — 4.7 (138.0) 273.3 14.9 1,116.0 1,270.9 24.8 The accompanying notes are an integral part of the consolidated financial statements F-7 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)1. ORGANIZATION AND DESCRIPTION OF THE BUSINESSYandex N.V., together with its consolidated subsidiaries (together, the “Company”), is an internet and technologycompany and operates Russia’s largest internet search engine. The Company generates substantially all of its revenues fromonline advertising.Yandex N.V. was incorporated under the laws of the Netherlands in June 2004 and is the holding company ofYandex LLC, incorporated in the Russian Federation in October 2000, and other subsidiaries.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying consolidated financial statements have been prepared in conformity with accounting principlesgenerally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statementsdiffer from the financial statements prepared by the group’s individual legal entities for statutory purposes in that they reflectcertain adjustments, not recorded in the accounting records of the group’s individual legal entities, which are appropriate topresent the financial position, results of operations and cash flows in accordance with U.S. GAAP. Distributable retainedearnings of the Company are based on amounts reported in statutory accounts of individual entities and may significantlydiffer from amounts calculated on the basis of U.S. GAAP.Principles of ConsolidationThe consolidated financial statements include the accounts of the parent company and the entities it controls. Allinter‑company transactions and balances within the Company have been eliminated upon consolidation.Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the consolidated financial statements and amounts of revenues and expenses for the reporting period.Actual results could differ from those estimates. The most significant estimates relate to fair values of financial instruments,impairment assessments of goodwill and intangible assets, useful lives of property and equipment and intangible assets,income taxes, contingencies, fair values of share-based awards, and accounts receivable allowance. The Company bases itsestimates on historical experience and on various other assumptions that are believed to be reasonable, the results of whichform the basis for making judgments about the carrying values of assets and liabilities.Foreign Currency TranslationThe functional currency of the Company’s parent company is the U.S. dollar. The functional currency of theCompany’s operating subsidiaries is generally the respective local currency. The Company has elected the Russian ruble asits reporting currency. All balance sheet items are translated into Russian rubles based on the exchange rate on the balancesheet date and revenue and expenses are translated at monthly weighted average rates of exchange. Translation gains andlosses are recorded as foreign currency translation adjustments in other comprehensive income. Foreign exchange transactiongains and losses are included in other income/ (loss), net in the accompanying consolidated statements of income.F-8 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Convenience TranslationTranslations of amounts from RUB into U.S. dollars for the convenience of the reader have been made at theexchange rate of RUB 60.6569 to $1.00, the prevailing exchange rate as of December 31, 2016. No representation is madethat the RUB amounts could have been, or could be, converted into U.S. dollars at such rate.Certain Risks and ConcentrationsThe Company’s revenues are principally derived from online advertising, the market for which is highlycompetitive and rapidly changing. Significant changes in this industry or changes in users’ internet preferences or advertiserspending behavior could adversely affect the Company’s financial position and results of operations.In addition, the Company’s principal business activities are within the Russian Federation. Laws and regulationsaffecting businesses operating in the Russian Federation are subject to frequent changes, which could impact the Company’sfinancial position and results of operations.Approximately half of the Company’s revenue is collected on a prepaid basis; credit terms are extended to majorsales agencies and to larger loyal clients. Accounts receivable are typically unsecured and are primarily derived fromrevenues 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 oraccounts receivable in 2014, 2015 and 2016.Financial instruments that potentially subject the Company to a significant concentration of credit risk consist, inaddition to accounts receivable, primarily of cash, cash equivalents, debt securities and term deposits. The primary focus ofthe Company’s treasury strategy is to preserve capital and meet liquidity requirements.The Company’s treasury policy addresses the level of credit exposure by working with different geographicallydiversified banking institutions, subject to their conformity to an established minimum credit rating for bankingrelationships. To manage the risk exposure, the Company maintains its portfolio of investments in a variety of term deposits,highly‑rated debt instruments issued by financial institutions and money market funds.Revenue RecognitionThe Company recognizes revenues when the services have been rendered, the price is fixed or determinable,persuasive evidence of an arrangement exists, and collectability is reasonably assured. Revenue is recorded net of valueadded tax (“VAT”).The Company’s principal revenue streams and their respective accounting treatments are discussed below:Online Advertising RevenuesThe Company’s advertising revenue is generated from serving online ads on its own websites and on Yandex adnetwork members’ websites. Advance payments received by the Company from advertisers are recorded as deferred revenueon the Company’s consolidated balance sheet and recognized as advertising revenues in the period services are provided.Advertising sales commissions and bonuses that are paid to agencies are accounted for as an offset to revenues andamounted to RUB 3,594, RUB 4,113 and RUB 5,633 ($92.9) in 2014, 2015 and 2016, respectively.F-9 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)In accordance with U.S. GAAP, the Company reports advertising revenue gross of fees paid to Yandex ad networkmembers, because the Company is the primary obligor to its advertisers and retains collection risk. The Company records feespaid to ad network members as traffic acquisition costs, a component of cost of revenues.The Company recognizes online advertising revenue based on the following principles:The Company’s Yandex.Direct service offers advertisers the ability to place performance-based ads on Yandex andYandex ad network member websites targeted to users’ search queries or website content. The Company recognizes asrevenues fees charged to advertisers as “click‑throughs” occur. A “click‑through” occurs each time a user clicks on one of theperformance‑based ads that are displayed next to the search results or on the content pages of Yandex or Yandex ad networkmembers’ websites. The Company’s Yandex.Market services are priced on a cost‑per‑click (CPC) basis, similar toYandex.Direct. Yandex.Market also operates on a take-rate-based model.The Company recognizes revenue from brand advertising on its websites and on Yandex ad network memberwebsites as “impressions” are delivered. An “impression” is delivered when an advertisement appears in pages viewed byusers.Other RevenueThe Company’s other revenue primarily consists of commissions for providing e-hailing services related to theCompany’s Yandex.Taxi service. The Company recognizes other revenue in the period the services are provided to the users.The Company reports only Yandex.Taxi’s commission fees as revenue since it is not a primary obligor to individualtransportation services users. Promotional discounts to users and minimum fare guarantees are netted against revenues. Incase such discounts and minimum fare guarantees exceed the related revenues, the excess is presented in sales, general andadministrative expenses in the consolidated statements of income.Cost of RevenuesCost of revenues primarily consists of traffic acquisition costs. Traffic acquisition costs consist of amountsultimately paid to Yandex ad network members and to certain other partners (“distribution partners”) who distribute theCompany’s products or otherwise direct search queries to the Company’s websites. These amounts are primarily based onrevenue‑sharing arrangements with ad network members and distribution partners. Traffic acquisition costs are expensed asincurred. Cost of revenues also includes expenses associated with the operation of the Company’s data centers, includingpersonnel costs, rent, utilities and bandwidth costs; as well as content acquisition costs and other cost of revenues.Product Development ExpensesProduct development expenses consist primarily of personnel costs incurred for the development of, enhancement toand maintenance of the Company’s search engine and other Company’s websites and technology platforms. Productdevelopment expenses also include rent and utilities attributable to office space occupied by development staff.Software development costs, including costs to develop software products, are expensed before technologicalfeasibility is reached. Technological feasibility is typically reached shortly before the release of such products and as a result,development costs that meet the criteria for capitalization were not material for the periods presented.F-10 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Advertising and Promotional ExpensesThe Company expenses advertising and promotional costs in the period in which they are incurred. For the yearsended December 31, 2014, 2015 and 2016, promotional and advertising expenses totaled approximately RUB 1,741, RUB2,738 and RUB 7,132 ($117.6), respectively.Government Funds ContributionsThe Company makes contributions to governmental pension, medical and social funds on behalf of its employees.In Russia, the amount was calculated using a regressive rate (from 30% to 10% in 2014 and from 30% to 15% in 2015and 2016) based on the annual compensation of each employee. These contributions are expensed as incurred.Share‑Based CompensationThe Company grants share options, share appreciation rights (“SARs”), restricted share units (“RSUs”) and businessunit equity awards (together, “Share‑Based Awards”) to its employees and consultants.The Company estimates the fair value of share options, SARs and business unit equity awards that are expected tovest using the Black‑Scholes‑Merton (“BSM”) pricing model and recognizes the fair value on a straight‑line basis over therequisite service period. The fair value of RSUs is measured based on the fair market values of the underlying share on thedates of grant.The assumptions used in calculating the fair value of Share‑Based Awards represent the Company’s best estimates,but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors changeand the Company uses different assumptions, the Company’s share‑based compensation expense could be materiallydifferent in the future. In particular, the Company is required to estimate the probability that performance conditions thataffect the vesting of certain awards will be achieved, and only recognizes expense for those shares expected to vest. Startingfrom the fourth quarter of 2016 the Company accounts for forfeitures as they occur.Cancellation of an award accompanied by the concurrent grant of a replacement award is accounted for as amodification of the terms of the cancelled award (“modification awards”). The compensation costs associated with themodification awards are recognized if either the original vesting condition or the new vesting condition has been achieved.Such compensation costs cannot be less than the grant‑date fair value of the original award. The incremental compensationcost is measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at thecancellation date. Therefore, in relation to the modification awards, the Company recognizes share‑based compensation overthe vesting periods of the new awards, which comprises (1) the amortization of the incremental portion of share‑basedcompensation over the remaining vesting term and (2) any unrecognized compensation cost of the original award, usingeither the original term or the new term, whichever is higher for each reporting period.Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets,including tax loss and credit carry‑forwards, and liabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferredincome tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Thecomponents of the deferred tax assets and liabilities are individually classified asF-11 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)non‑current. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likelythan not that some portion or all of the deferred tax assets will not be realized. In making such a determination, managementconsider all available evidence, including future reversals of existing taxable temporary differences, projected future taxableincome, tax-planning strategies, and results of recent operations.The tax benefits of uncertain income tax positions are recognized in the financial statements if it is more likely thannot that they will be sustained on audit by the tax authorities, including resolution of related appeals or litigation processes,if any.These tax benefits are measured as the largest amount which is more than 50% likely of being realized uponultimate settlement.The Company recognizes interest and penalties related to unrecognized income tax benefits within the provision forincome taxes line in the consolidated statements of income. Accrued interest and penalties are presented in the consolidatedbalance sheets within other accrued liabilities, non-current or accounts payable and accrued liabilities together withunrecognized income tax benefits based on the timing of expected resolution.Comprehensive IncomeComprehensive income is defined as the change in equity during a period from non‑owner sources. U.S. GAAPrequires the reporting of comprehensive income in addition to net income. Comprehensive income of the Company includesnet income and foreign currency translation adjustments. For the years ended December 31, 2014, 2015 and 2016 totalcomprehensive income included, in addition to net income, the effect of translating the financial statements of theCompany’s legal entities domiciled outside of Russia from these entities’ functional currencies into Russian rubles.Accumulated other comprehensive income of RUB 3,099 as of December 31, 2015 and RUB 896 ($14.9) as ofDecember 31, 2016 solely comprises cumulative foreign currency translation adjustment.Redeemable Noncontrolling InterestsOwnership interests in the Company’s consolidated subsidiaries held by the senior employees of these subsidiariesare considered redeemable as according to the terms of the business unit equity awards the employees have the right toredeem their interests for cash. Accordingly, such redeemable noncontrolling interests have been presented as mezzanineequity in the consolidated balance sheets.Fair Value of Financial InstrumentsFinancial instruments carried on the balance sheet include cash and cash equivalents, term deposits, restricted cash,investments in debt and equity securities, accounts receivable, loans to employees, accounts payable, accrued liabilities andconvertible debt. The carrying amounts of cash and cash equivalents, short-term deposits, current restricted cash, accountsreceivable, accounts payable and accrued liabilities approximate their respective fair values due to the short‑term nature ofthose instruments.Term DepositsBank deposits are classified depending on their original maturity as (i) cash and cash equivalents if the originalmaturities are three months or less; (ii) current term deposits if the original maturities are more than three months, but no morethan one year; and (iii) non‑current term deposits if the original maturities are more than one year.F-12 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Investments in Debt SecuritiesAs the Company has both the positive intent and the ability to hold debt securities to maturity, the Company’sinvestments in debt securities are classified as held to maturity and are measured and presented at amortized cost, except forcredit-linked notes (Notes 5, 7), which are measured and presented at fair value. The interest related to investments in debtsecurities is reported as a part of interest income, net in the consolidated statements of income.Investments in Equity SecuritiesInvestments in the stock of entities in which the Company can exercise significant influence but does not own amajority equity interest or otherwise control are accounted for using the equity method. The Company records its share of theresults of these companies within the other income, net line on the consolidated statements of income. Investments in thenon‑marketable stock of entities in which the Company can exercise little or no influence are accounted for using the costmethod. Both equity and cost method accounted investments are included in investments in non‑marketable equitysecurities line on the consolidated balance sheets.The Company reviews its investments in equity securities for other-than-temporary impairment whenever events orchanges in business circumstances indicate that the carrying value of the investment may not be fully recoverable.Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment isother-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 ofthe companies including current earnings trends and forecasted cash flows, and other company and industry specificinformation. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to otherincome, net and a new cost basis in the investment is established.Accounts Receivable, NetAccounts receivable are stated at their net realizable value. The Company provides an allowance for doubtfulaccounts based on management’s periodic review for recoverability of accounts receivable from customers and otherreceivables. The Company evaluates the collectability of its receivables based upon various factors, including the financialcondition and payment history of major customers, an overall review of collections experience of other accounts andeconomic factors or events expected to affect the Company’s future collections.Property and EquipmentProperty and equipment are recorded at cost and depreciated over their useful lives. Capital expenditures incurredbefore property and equipment are ready for their intended use are capitalized as assets not yet in use.Depreciation is computed under the straight‑line method using estimated useful lives as follows: Estimated useful livesServers and network equipment 3.0 yearsInfrastructure systems 3.0 - 10.0 yearsOffice furniture and equipment 3.0 yearsBuildings 10.0 - 20.0 yearsLeasehold improvements the shorter of 5.0 years or the remaining period of the lease termOther equipment 3.0 ‑ 5.0 years Land is not depreciated.F-13 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Depreciation of assets included in assets not yet in use commences when they are ready for the intended use.Goodwill and Intangible AssetsGoodwill represents the excess of purchase consideration over the Company’s share of fair value of the net assets ofacquired businesses. During the measurement period, which may be up to one year from the acquisition date, the Companymay prospectively apply adjustments to the assets acquired and liabilities assumed with the corresponding offset togoodwill. Goodwill is not subject to amortization but is tested for impairment at least annually.The Company performs a qualitative assessment to determine whether further impairment testing on goodwill isnecessary. If the Company believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair valueof a reporting unit is less than its carrying amount, a quantitative impairment test is required. Otherwise, no further testing isrequired. The quantitative impairment test is performed by comparing the carrying value of each reporting unit’s net assets(including allocated goodwill) to the fair value of those net assets. If the reporting unit’s carrying amount is greater than itsfair value, then a second step is performed whereby the portion of the fair value that relates to the reporting unit’s goodwill iscompared to the carrying value of that goodwill. The Company recognizes a goodwill impairment charge for the amount bywhich the carrying value of goodwill exceeds its implied fair value. The Company did not recognize any goodwillimpairment for the years ended December 31, 2014 and 2016; in 2015 the Company recognized impairment of RUB 576related to its earlier KinoPoisk acquisition (Note 9).The Company amortizes intangible assets using the straight-line method and estimated useful lives of assets rangingfrom 1 to 10 years, with a weighted‑average life of 5.2 years: Estimated useful livesAcquisition-related intangible assets: Content and software 1.0-10.0 yearsCustomer relationships 5.0-10.0 yearsPatents and licenses 6.8 yearsNon-compete agreements 2.0-5.0 yearsTrade names and domain names 7.0-10.0 yearsWorkforce 4.0 yearsOther technologies and licenses the shorter of 5.0 years or the underlying license termsImpairment of Long-lived Assets Other Than GoodwillThe Company evaluates the carrying value of long‑lived assets other than goodwill for impairment whenever eventsor changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. When such adetermination is made, management’s estimate of undiscounted cash flows to be generated by the assets is compared to thecarrying value of the assets to determine whether impairment is indicated. If impairment is indicated, the amount of theimpairment recognized in the consolidated financial statements is determined by estimating the fair value of the assets andrecording a loss for the amount by which the carrying value exceeds the estimated fair value. This fair value is usuallydetermined based on estimated discounted cash flows.Recently Adopted Accounting PronouncementsEffective December 31, 2016, the Company adopted an ASU on accounting for share-based payments when theterms of an award provide that a performance target could be achieved after the requisite service period. The adoption of thisASU did not have a material effect on the Company’s consolidated financial statements.F-14 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Effective December 31, 2016, the Company adopted an ASU on disclosure of uncertainties about an entity's abilityto continue as a going concern that requires management to assess an entity's ability to continue as a going concern byincorporating and expanding upon certain principles that are currently in U.S. auditing standards. The adoption of this ASUdid not have a material effect on the Company’s consolidated financial statements.In the fourth quarter of 2016, the Company early adopted an ASU that simplifies certain aspects of the accountingfor share-based payment transactions to employees. Stock-based compensation excess tax benefits or deficiencies are nowreflected in the consolidated statements of income as a component of the provision for income taxes, whereas they previouslywere recognized in equity. The Company also elected to account for forfeitures as they occur, rather than estimate expectedforfeitures. The adoption of this ASU did not have a material impact on the Company's consolidated balance sheet, results ofoperations or statements of cash flows.Effective December 31, 2016, the Company early adopted an ASU which clarifies the classification of certain cashreceipts and cash payments in the statement of cash flows. The new standard was applied on a retrospective basis. There wasno reclassification impact of the adoption on the Company’s consolidated statement of cash flows.Effect of Recently Issued Accounting PronouncementsIn May 2014, the FASB issued an ASU on revenue from contracts with customers that will replace all current U.S.GAAP guidance on this topic and eliminate all industry-specific guidance. The new guidance (i) removes inconsistencies andweaknesses in revenue requirements, (ii) provides a more robust framework for addressing revenue issues, (iii) improvescomparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (iv) providesmore useful information to users of financial statements through improved disclosure requirements, and (v) simplifies thepreparation of financial statements by reducing the number of requirements to which an entity must refer. The core principleis that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount thatreflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Followingamendments in August 2015, the guidance is effective for annual reporting periods beginning after December 15, 2017including interim periods within that reporting period. The amendments to this guidance issued in March 2016 clarify theimplementation guidance on principal versus agent considerations (reporting revenue gross versus net). The new standardpermits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), orretrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (themodified retrospective method). The Company currently anticipates adopting the standard effective January 1, 2018 usingthe modified retrospective method. The Company is still in the process of evaluating the impact of adopting this newaccounting standard on its financial statements and related disclosures.In January 2016, the FASB issued an ASU amending the guidance on the classification and measurement offinancial instruments. Although the guidance retains many current requirements, it significantly revises accounting for (1)the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changesfor financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fairvalue of financial instruments. The adoption of this guidance is effective for reporting periods beginning on or afterDecember 15, 2017 with early adoption permitted for certain provisions of the ASU. The Company is currently evaluatingthe impact of the new guidance and the method of adoption.In February 2016, the FASB issued an ASU on accounting for leases which introduces a model that brings mostleases on the lessee’s balance sheet. The amendments are effective for annual reporting periods beginning after December 15,2018, including interim periods within those annual reporting periods. Early adoption is permitted. The Companyanticipates that the adoption of new standard will materially affect the consolidated balance sheets. The Company iscurrently evaluating the impact of the new guidance and the method of adoption.F-15 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)In March 2016, the FASB issued an ASU on accounting for contingent put and call options in debt instrumentswhich clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment ofprincipal on debt instruments are clearly and closely related to their debt hosts. Under the amendments in this ASU an entityperforming the assessment is required to assess the embedded call (put) options solely in accordance with the four-stepdecision sequence. The ASU is effective for reporting periods beginning after December 15, 2016. The ASU should beapplied on a modified retrospective basis to existing debt instruments as of the beginning of the reporting year for which theamendments are effective. The Company is currently evaluating the impact of the new guidance and the method of adoption.In March 2016, the FASB issued an ASU which simplifies the transition to the equity method of accounting,eliminating the requirement for retroactive adjustment of the investment upon transition to the equity method. The ASU iseffective for reporting periods beginning after December 15, 2016. The ASU should be applied prospectively to increases inthe level of ownership interest or degree of influence that result in the adoption of the equity method. The Company iscurrently evaluating the impact of the new guidance and the method of adoption.In June 2016, the FASB issued an ASU which requires the measurement and recognition of expected credit losses forfinancial assets held at amortized cost to be presented at the net amount expected to be collected. The ASU is effective forreporting periods beginning after December 15, 2019. Early adoption is permitted for reporting periods beginning afterDecember 15, 2018. The Company is currently evaluating the effect that this guidance will have on the consolidatedfinancial statements and related disclosures.In October 2016, the FASB issued an ASU which requires to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory, when the transfer occurs. The ASU is effective for reporting periods beginningafter December 15, 2017, with early adoption permitted. The amendments in this ASU should be applied on a modifiedretrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period ofadoption. The Company is currently evaluating the effect that this guidance will have on the consolidated financialstatements and related disclosures.In October 2016, the FASB issued an ASU that amends the consolidation guidance on how variable interest entitiesshould treat indirect interest in the entity held through related parties. The ASU is effective for reporting periods beginningafter December 15, 2016. The adoption of the ASU will not impact the Company's consolidated balance sheets or results ofoperations.In November 2016, the FASB issued an ASU which requires companies to include amounts generally described asrestricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. The ASU is effective for reporting periodsbeginning after December 15, 2017, with early adoption permitted. The amendment should be adopted retrospectively. TheCompany plans to adopt this new guidance in 2017. The restricted cash as of December 31, 2016 amounted to RUB 578($9.5) (Notes 5, 7).In January 2017, the FASB issued an ASU that clarifies the definition of a business with the objective of addingguidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) ofassets or businesses. This ASU is effective for reporting periods beginning after December 15, 2017. The Company iscurrently evaluating the effect that the adoption of this ASU will have on the consolidated financial statements. In January 2017, the FASB issued an ASU that simplifies the subsequent measurement of goodwill by removing thesecond step of the two-step impairment test. The ASU is effective for reporting periods beginning after December 15, 2019,with early adoption permitted, and is to be applied on a prospective basis. The Company anticipates early adopting the ASUin 2017.F-16 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)In February 2017, the FASB issued an ASU that clarifies the scope of the derecognition of nonfinancial assets andprovides guidance for the partial sales of nonfinancial assets in context of the new revenue standard. The ASU is effective forreporting periods beginning after December 15, 2017, with early adoption permitted. The Company currently anticipatesadopting the standard effective January 1, 2018, and is currently evaluating the effect that the guidance will have on theconsolidated financial statements and related disclosures.3. NET INCOME PER SHAREBasic net income per Class A and Class B ordinary share for the years ended December 31, 2014, 2015 and 2016 iscomputed on the basis of the weighted average number of ordinary shares outstanding using the two class method. Basic netincome per share is computed using the weighted average number of ordinary shares outstanding during the period,including restricted shares. Diluted net income per ordinary share is computed using the effect of the outstandingShare‑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 thediluted net income per Class B share does not assume the conversion of those shares. The net income per share amounts arethe same for Class A and Class B shares because the holders of each class are legally entitled to equal per share distributionswhether through dividends or in liquidation. The number of Share‑Based Awards excluded from the diluted net income perordinary share computation, because their effect was anti-dilutive for the years ended December 31, 2014, 2015 and 2016,was 1,558,500, 4,652,546 and 2,362,417, respectively. The effects of Business Unit Equity Awards were excluded from thediluted net income per ordinary share computation for the years ended December 31, 2015 and 2016, because the effects wereanti-dilutive.The Company’s outstanding convertible debt provides for a flexible settlement feature. The Company intends tosettle upon conversion the principal amount of the debt for cash and the conversion premium for Class A shares. Theconvertible debt is included in the calculation of diluted net income per share if its inclusion is dilutive under the treasurystock method. The convertible debt was anti‑dilutive in the years ended December 31, 2014, 2015 and 2016.The components of basic and diluted net income per share were as follows: Year ended December 31, 2014 2015 2016 Class A Class B Class A Class B Class A Class A Class B Class B RUB RUB RUB RUB RUB $ RUB $ Net income, allocated for basic 13,300 3,720 7,992 1,687 5,825 96.0 973 16.0 Reallocation of net income as a resultof conversion of Class B to Class A shares 3,720 — 1,687 — 973 16.0 — — Reallocation of net income to Class B shares — 32 — 11 — — (1) — Net income, allocated for diluted 17,020 3,752 9,679 1,698 6,798 112.0 972 16.0 Weighted average ordinary sharesoutstanding—basic 249,543,232 69,793,550 263,033,597 55,508,290 274,863,606 274,863,606 45,925,361 45,925,361 Dilutive effect of: Conversion of Class B to Class A shares 69,793,550 — 55,508,290 — 45,925,361 45,925,361 — — Share-Based Awards 6,273,495 1,988,808 5,171,550 1,258,731 5,347,982 5,347,982 694,042 694,042 Weighted average ordinary sharesoutstanding—diluted 325,610,277 71,782,358 323,713,437 56,767,021 326,136,949 326,136,949 46,619,403 46,619,403 Net income per share attributable to ordinaryshareholders: Basic 53.30 53.30 30.39 30.39 21.19 0.35 21.19 0.35 Diluted 52.27 52.27 29.90 29.90 20.84 0.34 20.84 0.34 F-17 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)4. BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONSAcquisitions in 2016The Company did not complete any business combinations in 2016.Acquisitions in 2015RosTaxiIn January 2015, the Company completed the acquisition of assets and assumption of liabilities of RosTaxi(“RosTaxi”), operator of a taxi fleet management application, for cash consideration of up to RUB 500, including a deferredpayment of up to RUB 380, subject to successful technical integration and client base transition, and contingentconsideration of up to RUB 500 payable in the Company’s ordinary shares depending on the number of qualifying taxi tripsthrough the third anniversary of the closing. During 2015, 2016 and for the period of January and February 2017, deferredpayments in the amount of RUB 50, RUB 65 ($1.1) and RUB 195, respectively, were paid. The acquisition was accountedfor as a business combination.Set out below is the condensed balance sheet of RosTaxi as of January 15, 2015, reflecting an allocation of thepurchase price to net assets acquired: January 15, 2015 RUB ASSETS: Intangible assets 114 Deferred tax assets 77 Goodwill 224 Total assets 415 Net assets 415 Total purchase consideration 415 The RUB 224 assigned to goodwill is attributable to the Taxi reportable segment and primarily arises due to specificsynergies that result from convergence with the Company’s technologies. Of the RUB 114 assigned to intangible assets,approximately RUB 93 relates to client relationships that will be amortized over a period of 5.0 years. The remaining RUB21 assigned to intangible assets represents non-compete agreements of RUB 12 and software of RUB 9. The Company hasnot included in the purchase consideration the contingent payment of up to RUB 500 related to the number of qualifyingtaxi trips but instead will record it as compensation expense on a straight-line basis as the sellers complete their requisiteservice periods.The results of operations of RosTaxi for the period prior to acquisition would not have had a material impact on theCompany’s results of operations for the years ended December 31, 2014 and 2015. Accordingly, no pro forma financialinformation is presented. The results of operations of RosTaxi did not have a material impact on the Company’s results ofoperations for the year ended December 31, 2015.F-18 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)AgnitumIn December 2015, the Company completed the acquisition of assets and assumption of liabilities of Agnitum Ltd(“Agnitum”), an antivirus protection developer, for cash consideration of RUB 120 and a deferred payment of up to RUB 80,including additional payments subject to the attainment of certain implementation and integration milestones of up to RUB60 payable in cash and up to RUB 20 to be granted in the Company’s RSUs. In 2016, a deferred payment in the amount ofRUB 60 ($1.1) was paid in cash. The acquisition was accounted for as a business combination.Set out below is the condensed balance sheet of Agnitum as of December 11, 2015, reflecting an allocation of thepurchase price to net assets acquired: December 11,2015 RUB ASSETS: Intangible assets 58 Deferred tax assets 12 Goodwill 50 Total assets 120 Net assets 120 Total purchase consideration 120 The RUB 50 assigned to goodwill is attributable to the Search and Portal reportable segment and primarily arisesdue to an assembled workforce that does not qualify for separate recognition and specific synergies that result fromconvergence with the Company’s browser technologies. Of the RUB 58 assigned to intangible assets, approximately RUB 50relates to software that will be amortized over a period of 1.0 - 3.0 years. The remaining RUB 8 assigned to intangible assetsrepresents domain name and trademark.The Company had not included in the purchase consideration the contingent cash payment of up to RUB 60 andcontingent RSU grants up to RUB 20 to the sellers that were subject to attaining certain implementation and integrationmilestones. These were recorded as a compensation expense on a straight-line basis in 2016 as the sellers completed theirrequisite service periods.The results of operations of Agnitum for the period prior to acquisition would not have had a material impact on theCompany’s results of operations for the years ended December 31, 2014 and 2015. Accordingly, no pro forma financialinformation is presented. The results of operations of Agnitum did not have a material impact on the Company’s results ofoperations for the year ended December 31, 2015.Acquisitions in 2014KitLocateIn 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 cash consideration of upto $10.2 (RUB 371 at the exchange rate as of the acquisition date), including $4.0 (RUB 145 at the exchange rate as of theacquisition date) paid in full upon closing of the deal, up to $2.3 (RUB 84 at the exchange rate as of the acquisition date) ofearn-out payments on the achievement of certain distribution milestones, and $3.9 (RUB 142 at the exchange rate as of theacquisition date) paid to an escrow account, the release of which was subject to KitLocate’s founders continued employment.The Company recorded the milestones-related earn-out payments at the fair value of $1.5 (RUB 55 at the exchange rate as ofacquisition date) as part of purchase consideration. The Company has not recorded the contingent payments related to thecontinued employment as purchase price consideration but insteadF-19 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)recorded them as compensation expense as the former KitLocate’s shareholders completed their requisite service periods. TheCompany fully settled its obligations by paying $1.9 (RUB 69 at the exchange rate as of acquisition date) in milestones-related earn-out payments and releasing the escrowed amount in full in July 2015.Set out below is the condensed balance sheet of KitLocate as of March 12, 2014, reflecting an allocation of thepurchase price to net assets acquired: March 12,2014 RUB 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 The RUB 158 assigned to goodwill is attributable to the Search and Portal reportable segment and primarily arisesdue to an assembled workforce that does not qualify for separate recognition and specific synergies that result from thedistribution capabilities of the Company. Of the RUB 59 assigned to intangible assets, RUB 30 relates to pending patents,RUB 20 relates to software and RUB 9 to non-compete agreements.The results of operations of KitLocate for the period prior to acquisition would not have had a material impact onthe Company’s results of operations for the years ended December 31, 2013 and 2014. Accordingly, no pro forma financialinformation is presented. The results of operations of KitLocate did not have a material impact on the Company’s results ofoperations for the year ended December 31, 2014.Auto.ruIn August 2014, the Company completed the acquisition of a 100% ownership interest in Auto.ru Group(“Auto.ru”), one of the leading online auto classifieds businesses in Russia, for cash consideration of $178.4 (RUB 6,428 atthe exchange rate as of the acquisition date) paid in full upon closing of the deal, including $14.0 (RUB 504 at the exchangerate as of the acquisition date) paid into an escrow account of which half was released to the sellers in February 2016. Theremaining amount in escrow will be paid to the sellers on the date falling 43 months after the completion date, assuming nowarranty claims.The Company recorded measurement period adjustments based on its ongoing valuation and purchase priceallocation procedures, which were completed during the third quarter of 2015.F-20 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Set out below is the condensed balance sheet of Auto.ru as of August 19, 2014, reflecting preliminary and finalallocation of the purchase price to net assets acquired: Preliminary Final Purchase Measurement Purchase Price Period Price Allocation Adjustments Allocation RUB RUB RUB ASSETS: Cash and cash equivalents 204 — 204 Current assets 36 — 36 Property and equipment 16 — 16 Intangible assets 1,400 352 1,752 Goodwill 5,168 (283) 4,885 Total assets 6,824 69 6,893 LIABILITIES: Current liabilities 28 — 28 Non-current liabilities 80 — 80 Deferred tax liabilities 288 69 357 Net assets 6,428 — 6,428 Total purchase consideration 6,428 — 6,428 The RUB 4,885 assigned to goodwill is attributable to the Classifieds reportable segment and primarily arises due toan assembled workforce that does not qualify for separate recognition and specific synergies that result from convergencewith other vertical aggregators developed by the Company and the Company’s distribution capabilities. Of the RUB 1,752assigned to intangible assets, approximately RUB 865 relates to trade names that will be amortized over a period of 10.0years. The remaining RUB 887 assigned to intangible assets represents customer relationships of RUB 756, website andapplications of RUB 116, and portal content of RUB 15.The results of operations of Auto.ru for the period prior to acquisition would not have had a material impact on theCompany’s results of operations for the years ended December 31, 2013 and 2014. Accordingly, no pro forma financialinformation is presented. The results of operations of Auto.ru did not have a material impact on the Company’s results ofoperations for the year ended December 31, 2014.ADFOXIn September 2014, the Company completed the acquisition of assets and assumption of liabilities constituting thebusiness of ADFOX LLC (“ADFOX”), an advertising technology platform that provides services for planning, managing andanalyzing advertising campaigns on the internet, for cash consideration of $11.3 (RUB 446 at the exchange rate as of theacquisition date), including $8.5 (RUB 336 at the exchange rate as of the acquisition date) paid upon closing of the deal and$1.4 (RUB 55 at the exchange rate as of the acquisition date) paid to the sellers on the first anniversary of the closing in thefourth quarter of 2015. The remaining balance of $1.4 (RUB 55 at the exchange rate as of the acquisition date) was paid tothe sellers on the second anniversary of the closing. The acquisition was accounted for as a business combination.F-21 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Set out below is the condensed balance sheet of ADFOX as of September 30, 2014, reflecting an allocation of thepurchase price to net assets acquired: September 30, 2014 RUB ASSETS: Property and equipment 2 Intangible assets 74 Deferred tax assets 74 Goodwill 296 Total assets 446 Net assets 446 Total purchase consideration 446 The RUB 296 assigned to goodwill is attributable to the Search and Portal reportable segment and primarily arisesdue to an assembled workforce that does not qualify for separate recognition and specific synergies that result from theapplication of the acquired technologies in the Company’s business. Of the RUB 74 assigned to intangible assets, RUB 59relates to software and website and RUB 15 relates to trade names.The results of operations of ADFOX for the period prior to acquisition would not have had a material impact on theCompany's results of operations for the years ended December 31, 2013 and 2014. Accordingly, no pro forma financialinformation is presented. The results of operations of ADFOX did not have a material impact on the Company's results ofoperations for the year ended December 31, 2014.OtherDuring the year ended December 31, 2014, the Company completed other acquisitions and purchases of intangibleassets for total consideration of approximately RUB 347. In aggregate, RUB 215 was attributed to intangible assets, RUB106 was attributed to goodwill, and RUB 26 was attributed to deferred tax assets. Goodwill is attributable to the E-commercereportable segment.F-22 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)5. CONSOLIDATED FINANCIAL STATEMENTS DETAILSCash and Cash EquivalentsCash and cash equivalents as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Cash 3,268 5,695 93.9 Cash equivalents: Bank deposits 14,775 22,521 371.3 Investments in money market funds 6,195 3 — Other cash equivalents — 13 0.2 Total cash and cash equivalents 24,238 28,232 465.4 Accounts Receivable, NetAccounts receivable as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Trade receivables 5,881 8,191 135.0 Allowance for doubtful accounts (295) (450) (7.4) Total accounts receivable, net 5,586 7,741 127.6 Movements in the allowance for doubtful accounts are as follows: 2014 2015 2016 2016 RUB RUB RUB $ Balance at the beginning of the period 73 132 295 4.9 Charges to expenses 75 182 211 3.5 Utilization (16) (19) (56) (1.0) Balance at the end of the period 132 295 450 7.4 Other Current AssetsOther current assets as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ VAT reclaimable 1,002 1,014 16.7 Loans to employees 264 454 7.5 Interest receivable 1,277 268 4.4 Receivables for disposed equity securities 44 267 4.4 Funds receivable 147 224 3.7 Restricted cash 857 136 2.2 Other 244 351 5.8 Total other current assets 3,835 2,714 44.7 F-23 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Restricted cash as of December 31, 2015 consisted of the cash reserved in a special escrow account before lapse ofthe claim period for warranties received in relation to the acquisition of Auto.ru. which was released to the founders in 2016in the amount of RUB 510, pledged cash in customs in the amount of RUB 335 and other restricted cash in the total amountof RUB 12. Restricted cash as of December 31, 2016 consisted of pledged cash in customs in the amount of RUB 128 ($2.1) and other restricted cash in the total amount of RUB 8 ($0.1).Restricted Cash, Non-currentNon-current restricted cash as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Related to the acquisition of Auto.ru (Note 4) 510 425 7.0 Other 23 17 0.3 Total restricted cash, non-current 533 442 7.3 Other Non‑current AssetsOther non‑current assets as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Loans to employees 758 1,129 18.6 Loans granted to third parties 620 847 14.0 Loans granted to related parties (Note 17) — 173 2.9 Interest receivable 10 27 0.4 Other receivables 4 193 3.2 Total other non-current assets 1,392 2,369 39.1 The loans granted to third parties represent U.S. dollar and RUB-denominated loans bearing interest of up to 4% andup to 7% per annum, respectively, and maturing in 2018 - 2025.Investments in Debt SecuritiesInvestments in debt securities as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Credit-linked notes 2,915 3,033 50.0 Total investments in debt securities 2,915 3,033 50.0 F-24 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Investments in Non-Marketable Equity SecuritiesInvestments in non‑marketable equity securities as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ Yandex.Money 700 832 13.7 Other 422 681 11.2 Total investments in non-marketable equity securities 1,122 1,513 24.9 In July 2013, the Company completed the sale of a 75% (less one ruble) interest in the charter capital ofYandex.Money to Sberbank for a cash consideration of RUB 1,964 ($59.1 at the exchange rate as of the sale date). TheCompany retained a noncontrolling interest (25% plus one ruble) and significant influence over Yandex.Money's business;accordingly, the Company accounts for its investment under the equity method. The Company records its share of the resultsof the investee in the amount of income of RUB 98 and income of RUB 217 ($3.6) for the years ended December 31, 2015and 2016, respectively, within the other income/(loss), net line in the consolidated statements of income.Accounts Payable and Accrued LiabilitiesAccounts payable and accrued liabilities as of December 31, 2015 and 2016 comprise the following: 2015 2016 2016 RUB RUB $ Trade accounts payable and accrued liabilities 6,015 7,852 129.4 Salary and other compensation expenses payable/accrued toemployees 979 1,680 27.8 Total accounts payable and accrued liabilities 6,994 9,532 157.2 Other Income/(Loss), NetThe following table presents the components of other income/(loss), net for the periods presented: 2014 2015 2016 2016 RUB RUB RUB $ Foreign exchange gains/(losses) 6,553 1,903 (3,834) (63.2) Gain from sale of equity securities — — 157 2.5 Gain from repurchases of convertible debt 548 310 53 0.9 Impairment of investments in equity securities (700) — — — Other (105) 46 229 3.8 Total other income/(loss), net 6,296 2,259 (3,395) (56.0) In the year ended December 31, 2014, the Company identified certain adverse external and internal eventsindicating that the decline in fair value of its investment in Blekko Inc. was other-than-temporary and recorded animpairment charge of RUB 700 in the other income/(loss), net in the consolidated statements of income. In the year endedDecember 31, 2015, the Company has disposed Blekko Inc.'s assets at a gain of RUB 46.Reclassifications Out of Accumulated Other Comprehensive IncomeFor the year ended December 31, 2016, the reclassification of foreign currency translation gain of RUB 103 ($1.7)from accumulated other comprehensive income resulted from liquidation of a foreign subsidiary.F-25 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)There were no reclassifications of losses out of accumulated other comprehensive income in the years endedDecember 31, 2014 and 2015.6. DERIVATIVE FINANCIAL INSTRUMENTSThe Company does not enter into derivative arrangements for hedging, trading or speculative purposes. However,some of the Company’s contracts have embedded derivatives that are bifurcated and accounted for separately from the hostagreements. None of these derivatives are designated as hedging instruments.The Company recognizes such derivative instruments as either assets or liabilities on the accompanyingconsolidated balance sheets at fair value and records changes in the fair value of the derivatives in the accompanyingconsolidated statements of income as other income/(loss), net.The fair value of derivative instruments as of December 31, 2015 and 2016 is as follows: Balance Sheet Location 2015 2016 2016 RUB RUB $ Foreign exchange contracts Other accrued liabilities 92 59 1.0 Total derivative liabilities 92 59 1.0 The effect of derivative instruments not designated as hedging instruments on income for the years endedDecember 31, 2014, 2015 and 2016 amounted to a loss of RUB 7, a loss of RUB 55 and a gain of RUB 33 ($0.5),respectively.7. FAIR VALUE MEASUREMENTSFair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants. A three‑tier fair value hierarchy is established as a basis forconsidering such assumptions and for inputs used in the valuation methodologies in measuring fair value:Level 1—observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets orliabilities;Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly or indirectly; andLevel 3—inputs for the asset or liability that are not based on observable market data (unobservableinputs).F-26 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The fair value of assets and liabilities as of December 31, 2015, including those measured at fair value on a recurringbasis, consisted of the following: Level 1 Level 2 Level 3 Total RUB RUB RUB RUB Assets: Cash equivalents: Bank deposits(1) — 14,775 — 14,775 Investments in money market funds 6,195 — — 6,195 Term deposits, current — 15,150 — 15,150 Term deposits, non-current — 18,455 — 18,455 Restricted cash 1,390 — — 1,390 Investments in debt securities — 2,915 — 2,915 Loans to employees — 1,022 — 1,022 Loans granted — 662 — 662 7,585 52,979 — 60,564 Liabilities: Convertible debt — 26,857 — 26,857 Contingent consideration (2) — — 407 407 Derivative contracts(2) — 92 — 92 — 26,949 407 27,356 (1)Bank deposits with original maturities of three months or less are included in cash equivalents. Bank deposits withmaturities of more than three months are classified as term deposits.(2)Amounts are measured at fair value on a recurring basis. The Company had no other financial assets or liabilitiesmeasured at fair value on a recurring basis during the year ended December 31, 2015.F-27 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The fair value of assets and liabilities as of December 31, 2016, including those measured at fair value on a recurringbasis, consisted of the following: Fair value measurement using Level 1 Level 2 Level 3 Total Total RUB RUB RUB RUB $ Assets: Cash equivalents: Bank deposits(1) — 22,521 — 22,521 371.3 Investments in money market funds 3 — — 3 — Term deposits, current — 31,769 — 31,769 523.7 Restricted cash 578 — — 578 9.5 Investments in debt securities(2) — 3,033 — 3,033 50.0 Loans to employees — 1,583 — 1,583 26.1 Loans granted — 1,120 — 1,120 18.6 581 60,026 — 60,607 999.2 Liabilities: Convertible debt — 19,228 — 19,228 317.0 Contingent consideration(2) — — 254 254 4.2 Derivative contracts(2) — 59 — 59 1.0 Redeemable noncontrolling interests (Note 14) — — 1,506 1,506 24.8 — 19,287 1,760 21,047 347.0 (1)Bank deposits with original maturities of three months or less are included in cash equivalents. Bank deposits withmaturities of more than three months are classified as term deposits.(2)Amounts are measured at fair value on a recurring basis. The Company had no other financial assets or liabilitiesmeasured at fair value on a recurring basis during the year ended December 31, 2016.The fair values of the Company’s Level 1 financial assets are based on quoted market prices of identical underlyingsecurities. The fair values of the Company’s Level 2 financial assets and liabilities are based on quoted prices and marketobservable data of similar instruments.There were no transfers of financial assets and liabilities between the levels of the fair value hierarchy during theyears ended December 31, 2014, 2015 and 2016.The total gains attributable to bank deposits and investments in money market funds amounted to RUB 1,840, RUB2,868 and RUB 2,583 ($42.6) in 2014, 2015 and 2016, respectively. Such amounts are included in interest income, net inthe consolidated statements of income.The Company measures at fair value non-financial assets and liabilities recognized as a result of businesscombinations.F-28 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The Company measures the fair value of non-current term deposits and convertible debt for disclosure purposes. Thecarrying amounts and fair values of non-current term deposits and convertible debt as of December 31, 2015 and 2016 wereas follows: 2015 2016 Carryingamount Fair value Carrying amount Fair value RUB RUB RUB $ RUB $ Term deposits, non-current 18,399 18,455 — — — — Convertible debt (27,374) (26,857) (18,750) (309.1) (19,228) (317.0) Total (8,975) (8,402) (18,750) (309.1) (19,228) (317.0) The Company did not estimate the fair value of non‑marketable equity investments carried at cost because it did notidentify events or changes in circumstances that might have had a significant adverse effect on the fair value of theseinvestments. Furthermore, the Company believes it is not practicable to estimate the fair value of these equity investmentssince quoted market prices are not available and the cost of obtaining independent valuations appears excessive consideringthe materiality of the investments to the Company.8. PROPERTY AND EQUIPMENT, NETProperty and equipment, net of accumulated depreciation, as of December 31, 2015 and 2016 consisted of thefollowing: 2015 2016 2016 RUB RUB $ Servers and network equipment 25,122 25,705 423.8 Infrastructure systems 6,185 6,470 106.7 Land and buildings 4,281 3,785 62.4 Office furniture and equipment 1,493 1,891 31.2 Leasehold improvements 766 941 15.5 Other equipment 74 56 0.8 Assets not yet in use 1,048 2,703 44.6 Total 38,969 41,551 685.0 Less: accumulated depreciation (18,109) (22,734) (374.8) Total property and equipment, net 20,860 18,817 310.2 Assets not yet in use primarily represent computer equipment, infrastructure systems and other assets underinstallation, including related prepayments, and comprise the cost of the assets and other direct costs applicable to purchaseand installation.Depreciation expenses related to property and equipment for the years ended December 31, 2014, 2015 and 2016amounted to RUB 3,480, RUB 6,197 and RUB 7,655 ($126.2), respectively.F-29 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)9. GOODWILL AND INTANGIBLE ASSETS, NETThe changes in the carrying amount of goodwill are as follows: Search andPortal E-commerce Classifieds Taxi Experiments Total Total RUB RUB RUB RUB RUB RUB $ Balance as of January 1, 2015 1,506 106 5,168 — 2,140 8,920 Goodwill acquired 50 — — 224 — 274 Goodwill measurement periodadjustment — — (283) — — (283) Goodwill impairment — — — — (576) (576) Foreign currency translation adjustment 246 — — — — 246 Balance as of December 31, 2015 1,802 106 4,885 224 1,564 8,581 141.5 Foreign currency translation adjustment (145) — — — — (145) (2.4) Balance as of December 31, 2016 1,657 106 4,885 224 1,564 8,436 139.1 In the year ended December 31, 2015, the Company recorded goodwill impairment in the amount of RUB 576related to the KinoPoisk acquisition in 2013 (included in Experiments) which is the amount by which the carrying value ofgoodwill exceeded its implied fair value. Goodwill impairment was a result of a combination of factors, including adversechanges in the business climate in Russia subsequent to the acquisition, higher than expected competition in the Russianonline media services sector and the resulting decrease in the projected operating results. Fair value was determined usingcash flow projections based on financial budgets covering a five-year period. The cash flows beyond that five-year periodhave been estimated based on sustainable long-term growth rates.Goodwill is non-deductible for tax purposes for all business combinations completed in the years ended December31, 2014, 2015 and 2016.Intangible assets, net of amortization, as of December 31, 2015 and 2016 consisted of the following intangibleassets: 2015 2016 Less: Net Less: Net Net Accumulated carrying Accumulated carrying carrying Cost amortization value Cost amortization value value RUB RUB RUB RUB RUB RUB $ Acquisition-related intangible assets: Trade names and domain names 1,129 (172) 957 1,129 (285) 844 13.9 Customer relationships 865 (123) 742 854 (215) 639 10.6 Content and software 1,115 (648) 467 563 (398) 165 2.7 Workforce 300 (94) 206 276 (155) 121 2.0 Patents and licenses 237 (116) 121 52 (21) 31 0.5 Non-compete agreements 41 (23) 18 38 (31) 7 0.1 Total acquisition-related intangible assets: 3,687 (1,176) 2,511 2,912 (1,105) 1,807 29.8 Other intangible assets: Technologies and licenses 5,574 (2,644) 2,930 7,046 (3,972) 3,074 50.7 Assets not yet in use 547 — 547 633 — 633 10.4 Total other intangible assets: 6,121 (2,644) 3,477 7,679 (3,972) 3,707 61.1 Total intangible assets 9,808 (3,820) 5,988 10,591 (5,077) 5,514 90.9 Amortization expenses of acquisition-related intangible assets for the years ended December 31, 2014, 2015 and2016 were RUB 242, RUB 502 and RUB 488 ($8.0), respectively.F-30 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Amortization expenses of other intangible assets for the years ended December 31, 2014, 2015 and 2016 were RUB762, RUB 1,092 and RUB 1,464 ($24.2), respectively.Estimated amortization expense over the next five years and thereafter for intangible assets is as follows: Acquired Other Total intangible intangible intangible assets assets assets RUB RUB RUB $ 2017 348 1,288 1,636 27.0 2018 311 835 1,146 18.9 2019 234 547 781 12.9 2020 213 297 510 8.4 2021 203 107 310 5.1 Thereafter 498 — 498 8.2 Total 1,807 3,074 4,881 80.5 10. INCOME TAXIncome taxes are computed in accordance with Russian Federation, Dutch and other national tax laws. The taxableincome of Yandex LLC was subject to federal and local income tax at a combined nominal rate of 20% for the years endedDecember 31, 2014, 2015 and 2016. Yandex N.V. is incorporated in the Netherlands, and its taxable profits were subject toincome tax at the rate of 25% in the years ended December 31, 2014, 2015 and 2016.Dividends paid to Yandex N.V. by its Russian subsidiaries are subject to a 5% dividend withholding tax, computedin accordance with the laws of the Russian Federation. Due to the so‑called participation exemption, dividends distributedby the Company’s Russian subsidiaries to Yandex N.V. are exempt from tax in the Netherlands.Provision for income taxes for the years ended December 31, 2014, 2015 and 2016 consisted of the following: 2014 2015 2016 2016 RUB RUB RUB $ Current provision for income tax—Russia (5,045) (3,912) (4,908) (80.9) Current provision for income tax—other (295) (193) (280) (4.6) Deferred income tax (expense)/benefit—Russia (256) (297) 331 5.4 Deferred income tax benefit—other 141 485 533 8.8 Total provision for income taxes (5,455) (3,917) (4,324) (71.3) The components of income before income taxes for the years ended December 31, 2014, 2015 and 2016 are asfollows: 2014 2015 2016 2016 RUB RUB RUB $ Income before income taxes—Russia 23,393 18,232 15,683 258.6 Loss before income taxes—other (918) (4,636) (4,576) (75.5) Total income before income taxes 22,475 13,596 11,107 183.1 A significant majority of the Company’s revenues and taxable income is generated in the Russian Federation.Yandex N.V., the Company’s Dutch parent company, has no operations and primarily generates interest income and incurscorporate expenses. Therefore, the Company has reconciled its effective tax rate to its Russian statutory rateF-31 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)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, 2014, 2015 and 2016: 2014 2015 2016 2016 RUB RUB RUB $ Expected provision at Russian statutory income taxrate of 20% 4,495 2,719 2,221 36.6 Effect of: Tax on dividends 466 423 359 5.9 Non-deductible share-based compensation 229 522 678 11.2 Other expenses not deductible for tax purposes 97 252 299 4.9 Accrual of unrecognized tax benefit 81 (51) 755 12.4 Difference in foreign tax rates (160) (185) (331) (5.4) Other (3) 2 198 3.3 Change in valuation allowance 250 235 145 2.4 Provision for income taxes 5,455 3,917 4,324 71.3 Movements in the valuation allowance are as follows: 2014 2015 2016 2016 RUB RUB RUB $ Balance at the beginning of the period (147) (414) (837) (13.8) Charges to expenses (250) (235) (145) (2.4) Foreign currency translation adjustment (17) (188) 323 5.3 Balance at the end of the period (414) (837) (659) (10.9) As of December 31, 2015 and 2016, the Company included accruals for unrecognized income tax benefits,including interest and penalties, totaling RUB 10 and RUB 185 ($3.0), respectively, as a component of other accruedliabilities, non-current and RUB 42 and RUB 580 ($9.6), respectively, as a component of accounts payable and accruedliabilities. As of December 31, 2015 and 2016, RUB 37 and RUB 580 ($9.6), respectively, of unrecognized income taxbenefits, if recognized, would affect the effective tax rate. The interest and penalties recorded as part of the provision forincome tax in the years ended December 31, 2014, 2015 and 2016 resulted in expense of RUB 30, a benefit of RUB 3 and anexpense of RUB 170 ($2.8), respectively. The Company does not anticipate significant increases or decreases inunrecognized income tax benefits over the next twelve months.A reconciliation of the total amounts of unrecognized income tax benefits is as follows: 2014 2015 2016 2016 RUB RUB RUB $ Balance at the beginning of the period 25 97 37 0.6 Increases/(decreases) related to prior years tax positions 69 (13) 469 7.8 Increases related to current year tax positions 2 10 74 1.2 Settlements — (57) — — Foreign currency translation adjustment 1 — — — Balance at the end of the period 97 37 580 9.6 F-32 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Temporary differences between the tax and accounting bases of assets and liabilities give rise to the followingdeferred tax assets and liabilities as of December 31, 2015 and 2016: 2015 2016 2016 RUB RUB $ Assets/(liabilities) arising from tax effect of: Deferred tax asset Accrued expenses 834 1,182 19.5 Net operating loss carryforward 967 904 14.9 Intangible assets 465 372 6.1 Other 23 81 1.4 Valuation allowance (837) (659) (10.9) Total deferred tax asset 1,452 1,880 31.0 Deferred tax liability Convertible debt discount (783) (350) (5.8) Property and equipment (441) (434) (7.2) Intangible assets (483) (348) (5.7) Unremitted earnings (894) (1,066) (17.6) Other (177) (60) (0.9) Total deferred tax liability (2,778) (2,258) (37.2) Net deferred tax liability (1,326) (378) (6.2) Net deferred tax assets 226 662 10.9 Net deferred tax liabilities (1,552) (1,040) (17.1) As of December 31, 2016, Yandex N.V. had net operating loss carryforwards (“NOLs”) for Dutch income taxpurposes of RUB 1,237 ($20.4). These NOLs expire in 2020-2025 tax years. As of December 31, 2016, a benefit of RUB188 ($3.1) related to the Dutch NOLs described above would be recorded by the Company in additional paid‑in capital if andwhen realized.The Company did not provide for dividend withholding taxes on the unremitted earnings of its foreign subsidiariesin 2013 and earlier years because they were considered permanently reinvested outside of the Netherlands. Starting in 2014,the Company began to accrue for a 5% dividend withholding tax on the portion of the current year profit of the Company’sprincipal Russian operating subsidiary that is considered not to be permanently reinvested in Russia. As of December 31,2016, the cumulative amount of unremitted earnings upon which dividend withholding taxes have not been provided isapproximately RUB 52,240 ($861.2). The Company estimates that the amount of the unrecognized deferred tax liabilityrelated to these earnings is approximately RUB 2,612 ($43.1). The tax years 2015-2016 remain open for examination by the Russian tax authorities with respect to the Company’sprincipal Russian operating subsidiary, Yandex LLC. A tax audit of Yandex LLC covering the tax years 2013-2014 wascompleted by the Russian tax authorities in 2016 and all related income tax charges assessed were fully accrued in theCompany’s consolidated financial statements as of December 31, 2016 in the amount of RUB 579 ($9.5). As of December 31,2016, Yandex LLC was not under audit by tax inspectorates. The tax years 2008-2016 remain open for examination by theDutch tax authorities with respect to Yandex N.V.11. CONVERTIBLE DEBTIn December 2013, the Company issued and sold $600.0 (RUB 19,719 at the exchange rate as of sale date) inaggregate principal amount of 1.125% convertible senior notes due December 15, 2018 at par. The Company also granted tothe initial purchasers a right to purchase up to an additional $90.0 (RUB 2,981 at the exchange rate as of sale date) inaggregate principal amount of notes solely to cover over‑allotments. In January 2014, the Company issued and sold anadditional $90.0 in aggregate principal amount of 1.125% convertible senior notes due December 15, 2018F-33 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)(together, the “Notes”) at par. Interest at an annual rate of 1.125% is payable semi‑annually on June 15 and December 15 ofeach year, beginning on June 15, 2014. The Notes are convertible into cash, Class A shares of the Company or a combinationof cash and Class A shares, at the Company’s election, under circumstances described below, based on an initial conversionrate of 19.44 Class A shares per $1,000 principal amount of Notes (which represents an initial conversion price ofapproximately $51.45 per share), subject to adjustment on the occurrence of fundamental change as defined in theagreement. The Notes are convertible, at the option of the holder, prior to June 15, 2018, if i) the last reported sale price of theClass A shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days isgreater than or equal to 130% of the conversion price on each applicable trading day; ii) during a 5 business day period afterany 10 consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading dayof the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A sharesand the conversion rate on each such trading day; iii) upon the occurrence of specified 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 any time until theclose of business on the business day immediately preceding the maturity date of the Notes. The Company will not have theright to redeem the Notes prior to maturity, except in connection with certain changes in tax laws. As of December 31, 2016,none of the conditions allowing the conversion of the Notes had been met.The net proceeds to the Company from the sale of the Notes (including over‑allotments) were approximately RUB22,479 ($683.1 at the exchange rates as of sale date). Debt issuance costs were approximately RUB 228 ($4.1), of which RUB38 ($0.7) was allocated to additional paid‑in capital and RUB 190 ($3.4) was allocated to deferred issuance costs which arepresented as a reduction of the carrying value of the Notes and will be amortized as interest expense over the term of theNotes. As of December 31, 2015 and 2016, unamortized deferred issuance cost was RUB 151 and RUB 65 ($1.1),respectively.The Company separately accounts for the liability and equity components of the Notes. The carrying value of theliability component of RUB 18,972 ($576.7 at the exchange rates as of sale date) was initially recognized at the presentvalue of its cash flows using a discount rate of 4.84%, the Company’s estimated borrowing rate at the date of the issuance fora similar debt instrument without the conversion feature. Debt discount is amortized using the effective interest method overthe period from the origination date through the stated maturity date. The value of the equity component ofRUB 3,728 ($113.3 at the exchange rates as of sale date) was calculated by deducting the fair value of the liabilitycomponent from the initial proceeds ascribed to the convertible debt instrument as a whole and was recorded as a debtdiscount.During 2016, the Company repurchased and retired $87.4 in aggregate principal amount of the outstanding Notesfor cash consideration of $82.0 (RUB 5,397 (or $89.0 at the convenience translation rate)); during 2015, the Companyrepurchased and retired $119.4 in aggregate principal amount of the outstanding Notes for cash consideration of RUB 6,096;during 2014, the Company repurchased and retired $150.0 in aggregate principal amount of the outstanding Notes for cashconsideration of RUB 6,414. The Company recorded a gain of RUB 53 ($0.9), RUB 310 and RUB 548 on the extinguishmentof the debt within the other income, net line in the consolidated statement of income for the years ended December 31, 2016,2015 and 2014, respectively.F-34 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The carrying value of the Notes as of December 31, 2015 and 2016 consisted of the following: 2015 2016 2016 RUB RUB $ 1.125% Convertible Senior Notes due December 2018 30,654 20,211 333.2 Unamortized debt discount(3,129)(1,396)(23.0)Unamortized debt issuance cost (151) (65) (1.1) Total convertible debt 27,374 18,750 309.1 The remaining unamortized debt discount of RUB 1,396 ($23.0) as of December 31, 2016 will be amortized over theremaining life of the Notes, which is approximately 2.0 years.The Company recognized RUB 1,091, RUB 1,293 and RUB 1,208 ($19.9) as interest expenses related to thecontractual interest coupon, amortization of the debt discount and issuance expenses for the years ended December 31, 2014,2015 and 2016, respectively. The effective interest rate on the liability component for the 2014 –2016 period was 5.1%.12. COMMITMENTS AND CONTINGENCIESLease and Other CommitmentsIn 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 more lease agreements to increase the size of its rented office space located in its headquarterscomplex in Moscow for the remaining period of the original lease. In April 2014, the Company further extended itsheadquarters complex signing a seven‑year lease agreement for additional office space and extending the existing rentagreements to 2021.As of December 31, 2016, future minimum lease payments due under the Moscow leases and other non‑cancellableoperating leases for more than one year are as follows: Moscow headquarters Other Payments due in the years ending December 31, lease leases Total Total RUB RUB RUB $ 2017 3,807 713 4,520 74.4 2018 4,089 727 4,816 79.4 2019 4,521 608 5,129 84.6 2020 4,038 557 4,595 75.8 2021 and thereafter 1,460 458 1,918 31.6 Total 17,915 3,063 20,978 345.8 For the purposes of the disclosure above, the Company assumed no changes in the rented space or rental pricespecified in existing rental agreements as of the reporting date. U.S.dollar amounts have been translated into Ruble at a rateof RUB 60.6569 to $1.00, the official exchange rate quoted as of December 31, 2016 by the Central Bank of the RussianFederation.For the years ended December 31, 2014, 2015 and 2016, rent expenses under operating leases totaled approximatelyRUB 2,674, RUB 4,372 and RUB 4,419 ($72.9), respectively.F-35 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)Additionally, the Company has entered into purchase commitments for other goods and services and acquisition ofbusinesses, which total RUB 3,188 ($52.6) in 2017, RUB 1,575 ($26.0) in 2018, RUB 884 ($14.6) in 2019, RUB 788 ($13.0)in 2020, RUB 644 ($10.6) in 2021 and RUB 24 ($0.4) thereafter.Legal ProceedingsIn the ordinary course of business, the Company is a party to various legal proceedings, and subject to claims,certain of which relate to copyright infringement, as well as to the alleged breach of certain contractual arrangements. TheCompany intends to vigorously defend any lawsuit and believe that the ultimate outcome of any pending litigation, otherlegal proceedings or other matters will have no material adverse effect on financial condition, results of operations orliquidity of the Company.As of December 31, 2016, the Company was subject to certain claims in the aggregate claimed amount ofapproximately RUB 2,071 ($34.2). The Company has not recorded a liability in respect of those claims as of December 31,2016.Environment and Current Economic SituationEmerging markets such as Russia are subject to different risks than more developed markets, including economic,political and social, and legal and legislative risks. Laws and regulations affecting businesses in Russia continue to changerapidly, and tax and regulatory frameworks are subject to varying and inconsistent interpretations. The future economicdirection of Russia is heavily influenced by the fiscal and monetary policies adopted by the government, together withdevelopments in the legal, regulatory, and political environment.In particular, taxes are subject to review and investigation by a number of authorities authorized by law to imposefines and penalties. Although the Company believes it has provided adequately for all tax liabilities based on itsunderstanding of the tax legislation, the above factors may create tax risks for the Company. In addition to the obligationsshown in the lease commitments section above, approximately RUB 580 ($9.6) of unrecognized tax benefits have beenrecorded as liabilities, and the Company is uncertain as to if or when such amounts may be settled (Note 10). Related tounrecognized tax benefits, the Company has also recorded a liability for potential penalties of RUB 101 ($1.7) and interestof RUB 84 ($1.4). As of December 31, 2016, except for the income tax contingencies described above, the Company accruedRUB 830 ($13.7) for contingencies related to non‑income taxes. The Company has not identified any possible non-incometax contingencies which could materialize and require the Company to pay additional amounts of tax as of December 31,2016.Because Russia produces and exports large volumes of oil and gas, its economy is particularly sensitive to the priceof oil and gas on the world market. In 2014 and 2015, Russia experienced an economic downturn characterized bysubstantial depreciation of its currency, sharp fluctuations of interest rates, a decline in disposable income, a steep decline inthe value of shares traded on its stock exchanges, a material increase in the inflation rate, and a decline in the gross domesticproduct. In 2016 and through the first months of 2017 some of those economic trends reversed or moderated, with rublestrengthening, oil prices increasing, inflation rates declining significantly and rate of decline in gross domestic productmoderating.Starting from 2014, several rounds of sanctions have been imposed by the U.S. and the E.U. on certain Russianofficials, businessmen and companies. Although neither the parent company nor the main operating subsidiary of theCompany are targets of sanctions, Yandex.Money was added to the U.S. sectoral sanctions list.The above mentioned events have led to reduced access of Russian businesses to international capital markets,increased inflation, economic recession and other negative economic consequences. The impact of further economicdevelopments on future operations and financial position of the group is at this stage difficult to determine.F-36 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)13. SHARE CAPITALThe 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. The principal 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 withthe Class B shares, on a pari passu 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 transferredto qualified holders. In order to sell 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 afixed nominal amount in the event of a dividend or distribution limited to €0.01 per share in any one financialyear if any such shares were to be outstanding on the record date for a dividend declaration. The Class C sharesare used for technical purposes related to the conversion of Class B shares into Class A shares. During theperiods between conversion and cancellation, all Class C shares are held by Yandex Conversion Foundation(Stichting Yandex Conversion). Yandex Conversion Foundation was incorporated under the laws of theNetherlands in October 2008 for the sole purpose of facilitating the conversion of Class B shares into Class Ashares. Yandex Conversion Foundation is managed by a board of directors appointed by the Company.On September 21, 2009, the Company issued a Priority Share to Sberbank. The holder of the Priority Share has theright to veto the accumulation of stakes in the Company in excess of 25% by a single entity, a group of related parties orparties acting in concert. The holder of the Priority Share does not have any rights to influence operating decisions of theCompany nor is it entitled to a seat on the Company’s Board. Transfer of the Priority Share requires the approval of theBoard. The Priority Share has been purchased by Sberbank at its par value of €1 and is entitled to a normal pro rata dividenddistribution.The Company’s articles of association authorize a special class of preference shares as a form of an anti‑takeoverdefense. The Company’s Board has the irrevocable authority for a period of five years to issue preference shares and grantrights to subscribe for preference shares up to the Company’s authorized share capital from time to time. This authority maybe renewed by a resolution of the general meeting of shareholders for a subsequent period of up to five years. The preferenceshares, if issued, would be entitled to receive preferential dividends at a rate of 12-month EURIBOR plus 200 basis points onthe amount paid thereon, prior and in preference to distributions in respect of ordinary shares. No preference shares have beenissued.F-37 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The share capital as of each balance sheet date is as follows (EUR in millions): December 31, 2015 December 31, 2016 Shares EUR RUB Shares EUR RUB Authorized: 2,122,591,048 2,093,995,776 Priority share 1 1 Preference shares 1,000,000,001 1,000,000,001 Class A ordinary shares 1,000,000,000 1,000,000,000 Class B ordinary shares 61,295,523 46,997,887 Class C ordinary shares 61,295,523 46,997,887 Issued and fully paid: 342,056,754 €8.7 366 330,616,989 €7.4 288 Priority share 1 — — 1 — — Preference shares — — — — — — Class A ordinary shares 282,161,148 2.8 122 285,019,019 2.8 124 Class B ordinary shares 47,895,605 4.8 170 45,037,734 4.5 161 Class C ordinary shares 12,000,000 1.1 74 560,235 0.1 3 Class C shares held in treasury 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 itsShare‑Based Awards to employees of the Company.In March 2013, the Company’s Board of Directors authorized a program to repurchase up to 12,000,000 Class Ashares from time to time in open market transactions. In December 2013, the Company’s Board of Directors authorized anincrease in the existing program by 3,000,000 shares. In July 2014, the Company’s Board of Directors authorized a furtherrepurchase of up to 3,000,000 shares in effect through December 31, 2015.For the years ended December 31, 2013 and 2014, the Company repurchased 16,045,696 Class A shares for a totalamount of RUB 16,941. There were no repurchases in the years ended December 31, 2015 and 2016. Treasury stock isaccounted for under the cost method.14. REDEEMABLE NONCONTROLLING INTERESTSRedeemable noncontrolling interests relate to the equity incentive arrangements the Company has made availableto the senior employees of the Taxi, Classifieds and E-commerce business units, pursuant to which such persons are eligibleto acquire depositary receipts, or receive options to acquire depositary receipts, which entitle them to economic interests inthe respective subsidiaries of the Company.The noncontrolling interests relating to the depositary receipts acquired by the senior employees were measured atthe redemption value and amounted to RUB 631 ($10.4) as of December 31, 2016. The noncontrolling interests relating tothe options to acquire depositary receipts were measured at the redemption value and amounted to RUB 875 ($14.4) as ofDecember 31, 2016 (Note 15).15. SHARE‑BASED COMPENSATIONEmployee Equity Incentive PlanThe Company has granted Share‑Based Awards to employees of the Company pursuant to its Fourth Amended andRestated 2007 Equity Incentive Plan (the “2007 Plan”) and the 2016 Equity Incentive Plan (the “2016 Plan,” and togetherwith the 2007 Plan, the “Plans”).F-38 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)On February 7, 2007, the Company’s Board adopted the 2007 Plan, which superseded the previous 2001 EmployeeShare Option Plan, and subsequently amended the 2007 Plan on October 11, 2007, October 14, 2008, November 10, 2011,February 10, 2012, and July 24, 2013. The 2016 Plan was approved at the 2016 annual general meeting of shareholders onMay 27, 2016 and replaced the 2007 Plan. However, there remain unexercised grants under the 2007 Plan. A share optionissued under the Plans entitles the holder to purchase an ordinary share at a specified exercise price. SARs issued under thePlans entitle the holder to receive a number of Class A shares determined by reference to appreciation from and after the dateof grant in the fair market value of a Class A share over the measurement price. RSUs awarded under the Plans entitle theholder to receive a fixed number of Class A shares at no cost upon the satisfaction of certain time‑based vesting criteria. Theholders of RSUs have no rights to dividends or dividends equivalent. The 2016 Plan provides for the issuance of Share‑BasedAwards 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 of15% of the issued share capital of the Company.Under the Plans, the award exercise or measurement price per share is set at the “fair market value” and denominatedin U.S. dollars on the date the Share-Based Awards are granted by the Company’s Board. For purposes of the Plans, “fairmarket value” means (A) at any time when the Company’s shares are not publicly traded, the price per share most recentlydetermined by the Board to be the fair market value; and (B) at any time when the shares are publicly traded, (i) in the case ofRSUs, 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 perClass A Share (as adjusted to account for the ratio of Class A Shares to such depositary shares, if necessary) on the 20 tradingdays immediately following the date of determination. Share-Based Awards granted under the Plans generally vest over afour‑year period. Approximately 25% of the Share‑Based Awards vest after one year, with the remaining Share‑Based Awardsvesting 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 forgood reason or because of termination by the Company for any reason other than for cause, the Share‑Based Award(s) held bysuch grantee shall become fully vested and immediately exercisable. The maximum term of a Share‑Based Award grantedunder the Plans may not exceed ten years. The 2016 Plan expires at midnight on May 27, 2026. After its expiration, nofurther grants can be made under the 2016 Plan but the vesting and effectiveness of Share‑Based Awards previously grantedwill remain unaffected.In 2016, the Company offered the non-executive directors of the Company an opportunity to exchange theiroutstanding options for RSUs based on an exchange ratio of 2:1. As a result of the exchange, a total of seven non-executivedirectors of the Company exchanged an aggregate of 196,000 options for an aggregate of 98,000 RSUs. The replacementRSUs are subject to an additional 12 months vesting period beyond the original vesting schedule of the exchanged options.In addition, no exercise of the replacement RSUs are permitted for a 12 month period starting the date of exchange whichoccurred in May 2016.F-39 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The Company estimates the fair value of share options and SARs using the BSM pricing model. The weightedaverage assumptions used in the BSM pricing model for grants made under the 2007 Plan in the years ended December 31,2014 were as follows: 2014 Dividend yield — Expected annual volatility 38%Risk-free interest rate 1.85%Expected life of the awards (years) 5.52 - 7.04 Weighted-average grant date fair value of awards (per share) $10.74 No share options or SARs grants were made for the years ended December 31, 2015 and 2016.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 forfeitedprior to vesting and adjusted as appropriate for exceptional circumstances. The Company calculated theforfeiture rate by reference to the historical employee turnover rate.·Expected volatility. For 2013 grants, the Company used historical volatility of the Company’s own shares. For2014 grants, the Company used future volatility of the Company’s shares implied by the Company’sconvertible debt prices (Note 11) and cross-checked with the 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 the contractual and vesting terms, because the Company has no historical pattern ofexercises sufficient to estimate the expected term on a more reliable basis.·Dividend yield. This assumption is measured as the average annualized dividend estimated to be paid by theCompany over the expected life of the award as a percentage of the share price at the grant date. The Companydid not declare any dividends with respect to 2014, 2015 or 2016. Currently, the Company does not have anyplans to pay dividends in the near term. Because optionees were generally compensated for dividends and theCompany has no plans to pay cash dividends in the near term, it used an expected dividend yield of zero in itsoption pricing model for awards granted in the year ended December 31, 2014.·Fair value of ordinary shares. The Company estimated the fair value of its ordinary shares using the closingprice of its ordinary shares on the NASDAQ 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 ineffect at the grant date.F-40 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The following table summarizes awards activity for the Company under the Plans: Options SARs RSUs Weighted Weighted Weighted average exercise average exercise average exercise Quantity price per share Quantity price per share Quantity price per share Outstanding as ofDecember 31, 2015 4,042,175 $5.94 253,090 $27.27 7,441,839 — Granted — — — — 3,871,610 — Exercised (1,658,744) 4.01 (25,000) 19.00 (1,715,592) — Forfeited (3,500) 8.77 — — (391,742) — Cancelled (224,000) 26.35 (41,680) 19.08 (9,368) — Outstanding as ofDecember 31, 2016 2,155,931 $5.29 186,410 $30.21 9,196,747 — The following table summarizes information about outstanding and exercisable awards under the Plans as ofDecember 31, 2016: Awards Outstanding Awards Exercisable Average Average Remaining Aggregate Remaining Aggregate Type of Number Contractual Intrinsic Number Contractual Intrinsic Exercise Price ($) award outstanding Life (in years) Value exercisable Life (in years) Value $2.74 Option 46,300 0.50 0.8 46,300 0.50 0.8 $3.40 Option 260,950 1.09 4.4 260,950 1.09 4.4 $3.43 Option 164,720 2.45 2.8 164,720 2.45 2.8 $3.51Option610,2252.8610.1610,2252.8610.1$4.16 Option 374,108 3.43 6.0 373,171 3.42 6.0 $8.77 Option 699,628 3.85 7.9 699,628 3.85 7.9 Total Options 2,155,931 2.98 32.0 2,154,994 2.98 32.0 $16.95 SARs 2,500 4.97 — 2,500 4.97 — $19.00 SARs 25,000 5.57 — 25,000 5.57 — $20.99 SARs 8,910 4.91 — 8,044 4.91 — $38.99 SARs 150,000 6.56 — 150,000 6.56 — Total SARs 186,410 6.33 — 185,544 6.34 — Total RSUs RSU 9,196,747 8.44 185.1 2,277,557 6.84 45.8 Total Options, SARs,RSUs 11,539,088 7.39 217.1 4,618,095 5.02 77.8 The following table summarizes information about non‑vested share awards under the Plans: Options SARs RSUs Weighted Weighted Weighted average average average grant grant grant date fair date fair date fair Quantity value Quantity value Quantity valueNon-vested as of December 31, 2015 42,375 $10.47 55,867 $9.87 5,668,962 $20.78Granted — — — — 3,871,610 18.66Vested (13,438) 7.20 (19,560) 9.83 (2,223,443) 21.20Forfeited (3,500) 5.30 — — (391,742) 21.70Cancelled (24,500) 13.30 (35,441) 9.83 (6,197) 20.94Non-vested as of December 31, 2016 937 $2.58 866 $12.45 6,919,190 $19.41As of December 31, 2016, there was RUB 7,860 ($129.6) of unamortized share‑based compensation expense relatedto unvested share options, RSUs and SARs which is expected to be recognized over a weighted average period ofF-41 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)3.03 years. The Company expects 6,252,694 out of 6,919,190 RSUs to vest after December 31, 2016. To the extent the actualforfeiture rate is different from the Company’s estimate, share‑based compensation related to these awards will be differentfrom these expectations.Business Unit Equity AwardsIn 2016, the Company finalized the process of restructuring certain of the business units in its E-Commerce, Taxiand Classifieds operating segments (the “Participating Subsidiaries”) into separate legal structures. In connection with thisrestructuring, and to align the incentives of the relevant employees with the operations of the Participating Subsidiaries, theCompany granted 2.1 million equity incentive awards under the 2016 Plan to the senior employees of these business units,which entitle the participants to receive options to acquire redeemable depositary receipts of shares in the respectiveoperating subsidiaries (Note 14) upon the satisfaction of defined vesting criteria (the “Business Unit Equity Awards”), ofwhich 1.9 million remain outstanding as of December 31, 2016. The exercise price of the Business Unit Equity Awards shallbe determined from time to time by the Board and the standard vesting schedule for Business Unit Equity Awards under the2016 Plan is consistent with Shared Based Awards granted in the Company’s shares. Business Unit Equity Awards and anyawards granted to management of the Participating Subsidiaries outside of the 2016 Plan are not to exceed 20% of suchParticipating Subsidiary’s shares issued and outstanding from time to time.The Company has recorded share-based compensation expense in respect of such awards in the amount of RUB 192and RUB 260 ($4.3) for the years ended December 31, 2015 and 2016, respectively.Share‑Based Compensation ExpenseThe Company recognized share‑based compensation expense of RUB 1,210, RUB 2,718 and RUB 3,422 ($56.4) forthe years ended December 31, 2014, 2015 and 2016, respectively. The Company recognized RUB 20, RUB 41 and RUB 36 ($0.6) in related tax benefits for the years ended December 31, 2014, 2015 and 2016, respectively.16. INFORMATION ABOUT SEGMENTS, REVENUES & GEOGRAPHIC AREASStarting from 2015, following the changes in the Company’s organizational structure, the Company’s chiefoperating decision maker (“CODM”) is the management committee including its CEO, COO and a group of COO’s directreports. The Company reports its financial performance based on the following reportable segments: Search and Portal, E-commerce, Taxi and Classifieds. The results of the Company’s remaining operating segments, including Media Services,Yandex Data Factory, Discovery Services and Search and Portal in Turkey, that do not meet the quantitative or thequalitative thresholds for disclosure, are combined into the other category defined as Experiments which is shown separatelyfrom the reportable segments and reconciling items.Reportable segments derive revenues from the following services:·Search and Portal offers a broad range of services in Russia, Ukraine, Belarus and Kazakhstan, among which aresearch, location-based, personalized and mobile services, that enable the Company’s users to find relevant andobjective information quickly and easily and to communicate and connect over the internet, from both theirdesktops and mobile devices;·E-commerce — the Company’s Yandex.Market e-commerce gateway service gives retailers an additionalplatform to reach customers seeking specific retailer, product or price information. Product search onYandex.Market is designed to deliver the most relevant shopping results to the Company’s users;·Classifieds derives revenues from online advertising and listing fees;F-42 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)·Taxi derives revenue from commissions for providing e-hailing services related to the Company's Yandex.Taxiservice. Yandex. Taxi operated in 46 cities across Russia, Georgia, Armenia, Kazakhstan, Belarus and Ukraine,as of December 31, 2016. The Company accounts for intersegment revenues as if the services were provided to third parties, that is, at the levelapproximating current market prices.The measures of the segments’ profits and losses that are used by the CODM to assess segment performance anddecide how to allocate resources are presented below. Each segment’s assets and capital expenditures are not reviewed by theCODM. 2014 2015 2016 2016 RUB RUB RUB $ Search and Portal: Revenues from external customers 46,675 54,073 66,760 1,100.6 Intersegment revenues 1,245 1,832 2,496 41.1 Depreciation and amortization (4,090) (6,894) (8,858) (146.1) Adjusted operating income 16,485 15,199 20,020 330.0 E-commerce: Revenues from external customers 2,889 3,400 4,718 77.8 Intersegment revenues — — — — Depreciation and amortization (38) (115) (72) (1.2) Adjusted operating income 1,836 1,624 1,363 22.5 Classifieds: Revenues from external customers 539 894 1,304 21.5 Intersegment revenues — — — — Depreciation and amortization (16) (16) (20) (0.3) Adjusted operating income / (loss) 262 130 (74) (1.2) Taxi: Revenues from external customers 327 984 2,313 38.1 Intersegment revenues — — — — Depreciation and amortization (1) (27) (39) (0.6) Adjusted operating income / (loss) 217 136 (2,125) (35.0) Experiments: Revenues from external customers 337 441 830 13.7 Intersegment revenues — — — — Depreciation and amortization (339) (739) (618) (10.2) Adjusted operating loss (1,990) (3,409) (2,182) (36.0) Eliminations: Revenues from external customers — — — — Intersegment revenues (1,245) (1,832) (2,496) (41.1) Depreciation and amortization — — — — Adjusted operating income — — — — Total: Revenues from external customers 50,767 59,792 75,925 1,251.7 Intersegment revenues — — — — Depreciation and amortization (4,484) (7,791) (9,607) (158.4) Adjusted operating income 16,810 13,680 17,002 280.3 F-43 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)The reconciliation between adjusted operating income and net income is as follows: 2014 2015 2016 2016 RUB RUB RUB $ Adjusted operating income 16,810 13,680 17,002 280.3 Less: share-based compensation expense (1,210) (2,718) (3,422) (56.4) Add: interest income, net 856 1,744 1,655 27.3 Add: other income, net 6,296 2,259 (3,395) (56.0) Less: goodwill impairment — (576) — — Less: amortization of acquisition-related intangibleassets (242) (502) (488) (8.0) Less: compensation expense related to contingentconsideration (35) (291) (245) (4.1) Less: provision for income taxes (5,455) (3,917) (4,324) (71.3) Net income 17,020 9,679 6,783 111.8 The Company’s revenues consist of the following: 2014 2015 2016 2016 RUB RUB RUB $ Advertising revenue(1): Yandex websites 38,262 43,099 52,888 871.9 Yandex ad network websites 11,885 15,111 19,691 324.6 Total advertising revenue 50,147 58,210 72,579 1,196.5 Other revenues 620 1,582 3,346 55.2 Total revenues 50,767 59,792 75,925 1,251.7 (1)The Company records revenue net of VAT, sales agency commissions and bonuses and discounts. Because it isimpractical to track commissions, bonuses and discounts for online advertising revenues generated on Yandex websitesand on those of the Yandex ad network members separately, the Company has allocated commissions, bonuses anddiscounts between its Yandex websites and the Yandex ad network websites proportionately to their respective grossrevenue contributions.Revenues by geography are based on the billing address of the customer. The following table sets forth revenuesand long‑lived assets other than financial instruments and deferred tax assets by geographic area: 2014 2015 2016 2016 RUB RUB RUB $ Revenues: Russia 46,242 54,688 69,619 1,147.8 Rest of the world 4,525 5,104 6,306 104.0 Total revenues 50,767 59,792 75,925 1,251.7 Long-lived assets, net: Russia 21,115 23,636 24,499 403.8 Finland 6,481 11,115 8,327 137.3 US 1,002 1,109 684 11.3 Rest of the world 1,723 1,071 862 14.2 Total long-lived assets, net 30,321 36,931 34,372 566.6 F-44 Table of ContentsYANDEX N.V.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016(in millions of Russian rubles and U.S. dollars, except share and per share data)17. RELATED‑PARTY TRANSACTIONSThe Company has in place a registration rights agreement with its major shareholders that allows them to require theCompany to register Class A shares held by them under the U.S. Securities Act of 1933, as amended (the “Securities Act”),under certain circumstances. In such circumstances, the Company is obliged to pay all expenses, other than underwritingcommissions and discounts, relating to any such registration.Following the sale of the controlling interest to Sberbank and the deconsolidation of Yandex.Money in July 2013,the Company retained a noncontrolling interest and significant influence over Yandex.Money’s business. The Companycontinues to use Yandex.Money for payment processing and to sublease to Yandex.Money part of its premises. The amountof revenues from subleasing and other services was RUB 78, RUB 91 and RUB 106 ($1.7) for the years ended December 31,2014, 2015 and 2016, respectively. The amount of fees for online payment commissions was RUB 125, RUB 143 and RUB173 ($2.9) for the years ended December 31, 2014, 2015 and 2016, respectively. As of December 31, 2015 and 2016, theamount of receivables related to payment processing was RUB 27 and RUB 47 ($0.8), respectively. The Company believesthat 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.In 2016, the Group granted loans to certain senior employees in the amount of RUB 173 ($2.9) (Note 5). The loansbear interest rate of 8% per annum and mature in 2019.18. SUBSEQUENT EVENTSIn February 2017, the Company granted RSUs to purchase an aggregate of up to 735,537 Class A shares to itsemployees pursuant to the 2016 Plan.In January and February 2017, the Company repurchased and retired its outstanding Notes in aggregate principalamount of $2.0.In March 2017, the Company designated $103 (RUB 5,976 at the exchange rate as of the date of designation) ofdeposits with a third party bank as a hedging instrument to hedge its exposure to changes in the fair value of theunrecognized firm commitment on its Moscow headquarters operating lease arrangements that are attributable to foreigncurrency risk for the period ending December 31, 2018. The maturities of such deposits are aligned with the operating leaserepayment schedule. F-45 Table of Contents PART III. Item 17. Financial StatementsSee “Item 18. Financial Statements.” Item 18. Financial Statements.See the financial statements beginning on page F‑1. Item 19. Exhibits.ExhibitNumber Description of Document1.2 Amended Articles of Association of the Company, amended as of June 1, 20164.1 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* Framework Agreement dated February 19, 2016 between Krasnaya Roza 1875 Limited and Yandex N.V.(incorporated by reference to Exhibit 7.3 from our 2015 Annual Report on Form 20-F (file no. 001-35173) filedwith the Securities and Exchange Commission on March 22, 2016)8.1 Principal Subsidiaries12.1 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes‑Oxley Act of 200212.2 Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes‑Oxley Act of 200213.1 Certification by Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of theSarbanes‑Oxley Act of 200215.1 Consent of ZAO Deloitte & Touche CIS, Independent Registered Public Accounting Firm101 The following financial information formatted in eXtensible Business Reporting Language (XBRL):(i) Consolidated Balance Sheets as of December 31, 2015 and 2016, (ii) Consolidated Statements of Income forthe Years Ended December 31, 2014, 2015 and 2016, (iii) Consolidated Statements of Comprehensive Income forthe Years Ended December 31, 2014, 2015 and 2016, (iv) Consolidated Statements of Cash Flows for the YearsEnded December 31, 2014, 2015 and 2016, (v) Consolidated Statements of Shareholders’ Equity for the YearsEnded December 31, 2014, 2015 and 2016, and (vi) Notes to Consolidated Financial Statements*Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with theSecurities and Exchange Commission110 Table of Contents SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and that it has duly causedand authorized the undersigned to sign this Annual Report on its behalf. YANDEX N.V. By:/s/ ARKADY VOLOZH Name:Arkady Volozh Title:Chief Executive Officer Date: March 22, 2017 111 Exhibit 1.2VAN DOORNE N.V.TB/MZ/60007213In this translation an attempt has been made to be as literal as possible without jeopardising the overall continuity.Inevitably, differences may occur in translation, and if so, the Dutch text will by law governARTICLES OF ASSOCIATIONDefinitions.Article 1.1. In the Articles of Association the following words and expressions shall have the meaning hereby assigned tothem:a. "Affiliate" means, with respect to an Initial Qualified Holder that is not a natural person: (a) a naturalperson or legal entity that, directly, or indirectly through one or more intermediaries, controls, is controlledby, or is under common control with, such Initial Qualified Holder (a "Direct Affiliate"); (b) subject to thelimitations 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) any party that was (as of the tenth day of October two thousand andeight) a Direct Affiliate of such Initial Qualified Holder, in each case to the extent of its pro rata beneficialinterest 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) anylegal entity that is under common investment control with, or acts solely as bare nominee holder on behalfof, such Initial Qualified Holder, any Direct Affiliate or any Qualified Beneficial Holder, and (d) where suchInitial Qualified Holder is an estate or tax planning vehicle (including a trust, corporation and partnership)any direct or indirect beneficiary thereof (as of the tenth day of October two thousand and eight) to theextent of its pro rata beneficial interest in the Class B Ordinary Shares held by such Initial QualifiedHolder 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 fiftypercent (50%) of the voting power of a legal entity, or having the power to control the management orelect a majority of members to the board of directors or equivalent decision-making body of such legalentity; provided that, for purposes of clause (a) of the first paragraph of this definition, all voting powerheld by entities under common control (including investment funds under common investment control)shall be aggregated together and attributed to each1 other such entity under common control for the purpose of determining the voting power percentage ofeach such entity.The term "investment control" shall mean, with respect to any person, the possession, directly orindirectly (whether through the ownership of voting securities, by contract or otherwise), of the sole andexclusive power to direct or cause the direction of the voting or disposition of all securities held by suchperson. Two entities shall be considered to be under common investment control if they are subject toinvestment control by the same party.Notwithstanding the foregoing, (x) in no event shall a limited partner of (or comparable passive investor in)any entity be deemed to be an Affiliate of such entity pursuant to clauses (b) and (c) of the first paragraphof this definition; (y) a party shall cease to qualify as an Affiliate for purposes of clause (a) of the firstparagraph 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) ofthe first paragraph of this definition if it ceases to be under common investment control with, or to act asbare nominee for, such Initial Qualified Holder, Direct Affiliate or Qualified Beneficial Holder. For theavoidance 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 purposeshereof;b. "Affiliated Party" means: with respect to any party, any other natural person or legal entity that (a)directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under commoncontrol with such party (and/or, in the case of any Initial Qualified Holder, any Affiliate of such InitialQualified Holder), (b) is acting in concert with such party (and/or, in the case of any Initial QualifiedHolder, any Affiliate of such Initial Qualified Holder) pursuant to a voting agreement or other formalarrangement with respect to the acquisition, disposition or voting of Shares (other than the ShareholdersAgreement) or (c) is a pledgee of Ordinary Shares held by such party (and/or, in the case of any InitialQualified Holder, any Affiliate of such Initial Qualified Holder) that is entitled to exercise the voting rightspertaining to such Ordinary Shares. For purposes hereof, the term "control" shall have the meaning setforth in the definition of Affiliate;c. "Articles of Association" means: the articles of association of the Company in their current form and asamended 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 theCompany's business consisting of Executive Directors and Non-Executive Directors as referred to inArticle 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;2 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 Dutchlaw with statutory seat in The Hague and its business office at Schiphol Boulevard 165, 1118 BGSchiphol (the Netherlands);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 theapplicable Ownership Cap;m. "Executive Director" means: a member of the Board of Directors being appointed as executive director(uitvoerend bestuurder) and as such entrusted with the responsibility for the day-to-day management ofthe Company; n. "General Meeting" means: the members constituting the general meeting, and also: meetings of thatbody of members;o. "Initial Qualified Holder" means, in relation to any Class B Ordinary Share: (a) the person holding suchClass B Ordinary Share pursuant to the conversion into Class B Ordinary Shares of ordinary shares in thecapital of the Company on the tenth day of October two thousand eight and (b) any party that was arecord holder of Internet Search Investments Limited ("ISIL"), a Bermuda company, as of the twenty-sixthday of August two thousand and eight and has Class B Ordinary Shares distributed to it by ISIL prior tothe execution of this Deed pro rata to such party’s beneficial indirect interest in the Company on thetwenty-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 OrdinaryShares;q. "Meeting of holders of Class B Ordinary Shares" means: the meeting of holders of Class B OrdinaryShares;r. "Meeting of holders of Class C Ordinary Shares" means: the meeting of holders of Class C OrdinaryShares;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-executivedirector (niet-uitvoerend bestuurder) not being entrusted with the responsibility for the day-to-daymanagement of the Company;v. "Non-Qualified B Holder" with respect to any Class B Ordinary Share, means: anyone who is not aQualified B Holder of such Class B Ordinary Share or ceases to be a Qualified B Holder of such Class BOrdinary Share (including, for the avoidance of doubt, a legal holder of a Class B Ordinary Share that hasTransferred such Class B Ordinary Share other than to a Permitted Transferee);3 w. "Ordinary Shares" means: Class A Ordinary Shares, Class B Ordinary Shares and Class C OrdinaryShares;x. "Ownership Cap" means: the lesser of (a) twenty-five percent (25%) of the voting rights pertaining tothe issued Class A Ordinary Shares and Class B Ordinary Shares (taken together) of the Company fromtime to time or (b) twenty-five percent (25%) of the number of issued Class A Ordinary Shares and ClassB Ordinary Shares (taken together) from time to time.Notwithstanding the foregoing, (x) in the event that both the Board of Directors and the Priority haveapproved a holding of Excess Shares by a party as a result of a Triggering Event pursuant to the terms ofthe Articles of Association, the Ownership Cap in respect of such party, together with its AffiliatedParties, shall, following the date of such approval, be increased by the number of Excess Shares soapproved; and (y) in the event of an increase in a Shareholder’s proportionate ownership or voting interestoccurring solely as a result of changes in the share capital structure of the Company (including, withoutlimitation, share splits, capital reorganisations, share dividends, share repurchases, conversions of ClassB Ordinary Shares pursuant to the terms of Article 4B, and similar events or transactions), the OwnershipCap in respect of such Shareholder, together with its Affiliated Parties, shall, following the date of suchevent, be increased by the number of Excess Shares resulting from such event;y. "Permitted Transferee" in relation to any Class B Ordinary Share held by an Initial Qualified Holdermeans:(i) such Initial Qualified Holder (as transferee of any Class B Ordinary Share retransferred to suchInitial Qualified Holder from its Permitted Transferee);(ii) with respect to any such Initial Qualified Holder that is a natural person, any estate or tax planningvehicle (including a trust, corporation and partnership), the beneficiaries of which include such InitialQualified Holder and/or members of the immediate family of such Initial Qualified Holder, providedthat such Initial Qualified Holder retains (subject to any community or spousal property laws) solevoting and dispositive power over such Class B Ordinary Share, and provided further that theTransfer to such estate or tax planning vehicle does not involve payment of any consideration (otherthan the interest in such trust, corporation, partnership or other estate or tax planning vehicle); and(iii) with respect to any such Initial Qualified Holder that is not a natural person, any Affiliate of suchInitial Qualified Holder; provided however that any such party that ceases to be an Affiliate shallcease to be a Permitted Transferee.For purposes of the definition of "Triggering Event", each reference to "Class B Ordinary Shares" in theforegoing definition (and in the definition 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;4 bb. "Priority" means: the corporate body (orgaan) constituted by the Meeting of holder of the Priority Share;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 InitialQualified Holder of such Class B Ordinary Share and any Permitted Transferee thereof, in each caseprovided that (i) such person has become a party to, and is not in material continuing breach of, theShareholders Agreement and (ii) such Class B Ordinary Share has not been Transferred (including by wayof a transfer of the legal holder 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 Sharesand the Conversion Foundation, dated as of the fourteenth day of October two thousand eight, asamended 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 Book2; andjj. "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 ofsecurity interest (other than as explicitly provided in this definition), or other transfer or disposition of anOrdinary 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 a binding agreement with respect to, voting control over an Ordinary Shareby proxy or otherwise; provided, however, that the following shall not be considered a "Transfer" of anOrdinary 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) enteringinto the Shareholders Agreement or any amendment thereof; (c) solely with respect to Class B OrdinaryShares, the entering into or amendment, solely by and among a Qualified B Holder and one or more of itsPermitted Transferees, of a binding agreement with respect to voting control over a Class B OrdinaryShare; or (d) solely with respect to Class B Ordinary Shares, the pledge of Class B Ordinary Shares by aQualified B Holder that creates a mere security interest in such shares pursuant to a bona fide loan orindebtedness transaction so long as the Qualified B Holder continues to exercise voting control over suchpledged shares; provided, however, that a foreclosure on such Ordinary Shares or other similar action bythe pledgee shall constitute a "Transfer" of an Ordinary Share; and5 kk. "Triggering Event" means: any direct or indirect Transfer of Ordinary Shares after the twenty-sixth dayof August two thousand and nine (other than to a Permitted Transferee of such Ordinary Shares) oracquisition of Shares (including by Transfer or subscription and, for the avoidance of doubt, as a result ofa change of control of, or a merger or business combination involving, one or more legal or beneficialowners of a Share). For the avoidance of doubt, the term Triggering Event excludes changes inproportionate 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, sharedividends, share repurchases, conversions of Class B Ordinary Shares pursuant to the terms of Article4B, and similar events or transactions).2. The expressions "written" and "in writing" used in these Articles of Association mean: communications sentby post, telefax, e-mail or by any other means 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 bodiescorporate, companies and enterprises, to collaborate with and to manage such bodies corporate,companies or enterprises;b. to acquire, manage, turn to account, encumber and dispose of any property - including intellectualproperty rights - and to invest capital;c. to supply or procure the supply of money loans, particularly - but not exclusively - loans to bodiescorporate and companies which are Subsidiaries and/or affiliates of the Company or in which theCompany holds any interest - all this subject to the provision in paragraph 2 of this Article - , as well as todraw or to procure the drawing of money loans;d. to enter into agreements whereby the Company grants security, commits itself as guarantor or severallyliable co-debtor, or declares itself jointly or severally liable with or for others, particularly - but notexclusively - to the benefit of bodies corporate and companies as referred to above under c;e. to do all such things as are incidental or conducive to the above objects or any of them.2. The Company may not grant security, give price guarantees, commit itself in any other way or declare itselfjointly or severally liable with or for others with a view to enabling third parties to take or acquire Shares.Capital.6 Article 4.1. The authorised capital of the Company is twenty-eight million nine hundred twenty-nine thousand five hundredninety-nine euro and fifty-four eurocent (EUR 28,929,599.54), divided into:a. one billion ninety-three million nine hundred ninety-five thousand seven hundred seventy-four (1,093,995,774) Ordinary Shares of which are;i) one billion (1,000,000,000) Class A Ordinary Shares, each with a par value of one eurocent (EUR0.01);ii) forty-six million nine hundred ninety-seven thousand eight hundred eighty-seven (46,997,887) ClassB Ordinary Shares, each with a par value of ten eurocent (EUR 0.10);iii) forty-six million nine hundred ninety-seven thousand eight hundred eighty-seven (46,997,887) ClassC Ordinary Shares, each with a par value of nine eurocent (EUR 0.09);b. one billion and one (1,000,000,001) Preference Shares, each with a par value of one eurocent (EUR0.01); andc. one (1) Priority Share, with a par value of one euro (EUR 1.00).Transfer and conversion of Class B Ordinary Shares.Article 4A1. Class B Ordinary Shares may only be Transferred to (i) Permitted Transferees, (ii) to the ConversionFoundation for the purpose of conversion pursuant to Articles 4A and 4B and (iii) to the Company. Any otherpurported 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 Ordinary Shares to be converted into Class A Ordinary Shares, such Class BOrdinary 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 tothe Conversion Foundation, each Class B Ordinary Share is automatically converted into one (1) Class AOrdinary Share and one (1) Class C Ordinary Share. Unless the Company shall be a party to the transferinstrument, the Conversion Foundation shall forthwith notify the Company in writing of the conversion of ClassB Ordinary Shares as described in the preceding sentence. The transferor shall receive a Class A OrdinaryShare from the Conversion Foundation in exchange for each Class B Ordinary Share transferred to theConversion Foundation.4. The Board of Directors shall forthwith register any such conversion of Shares in the register of Shareholdersand equally in any applicable company register.5. The Company shall at all times reserve and keep available out of its authorized but unissued capital, solely forthe purpose of effecting the conversion of Class B Ordinary Shares, such number of Class A Ordinary Sharesand Class C Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstandingClass B Ordinary Shares into Class A Ordinary Shares and Class C Ordinary Shares.7 6. The Company may, from time to time, establish such policies and procedures relating to the conversion of theClass B Ordinary Shares into Class A Ordinary Shares and Class C Ordinary Shares and the generaladministration of this share capital structure as it may deem necessary or advisable, and may request thatholders of Class B Ordinary Shares furnish affidavits or other proof to the Company as it deems necessary toverify the legal and beneficial ownership of Class B Ordinary Shares and the "Qualified B Holder" status ofany such holder, and to confirm that Class B Ordinary Shares are 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 Holdershall, without prejudice to the stipulations of paragraph 4 of this Article, not be entitled to any dividend and/orvoting rights attached to the Class B Ordinary Shares held by such Non-Qualified B 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 Company of this fact by written notice (the "Notice") within three (3) days after theoccurrence of the event pursuant to which the Transferor is obliged to serve the Notice. At the time of theNotice the relevant Non-Qualified B Holder is obliged to offer his Class B Ordinary Shares to the ConversionFoundation (the "Offer"), through which such Class B Ordinary Shares are converted into Class A OrdinaryShares and Class C Ordinary Shares with due observance of Article 4A. The Transferor shall receive an equalnumber of Class A Ordinary Shares from the Conversion Foundation in exchange for such Class B OrdinaryShares.4. If the Transferor fails to:a. give the Notice and or make the Offer within the term provided in this Article; orb. transfer the relevant Class B Ordinary Shares to the Conversion Foundation within three (3) days of theNotice,the Company is irrevocably empowered and authorised to offer and transfer the relevant Class B OrdinaryShares to the Conversion Foundation and to accept the Class A Ordinary Shares in exchange for such ClassB Ordinary Shares for delivery to the Transferor.5. If the Conversion Foundation fails to accept the offered Class B Ordinary Shares from the Transferor withinthree (3) months after receipt of the Offer, then the Transferor's dividend and voting rights attached to its ClassB 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 outstanding Class A Ordinary Shares and Class B Ordinary Shares (bynumber, 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 PermittedTransferees, shall, following the death of such Qualified B Holder, be deemed to be held by a Non-Qualified BHolder.8 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 suchTriggering Event, such Shareholder or any other party (in each case together with its Affiliated Parties), wouldhold, legally and/or beneficially, Excess Shares, unless such holding of Excess Shares is approved by boththe Board of Directors and the Priority pursuant to paragraph 10 of this Article 4C. If the Shares (a) areadmitted to trading on a regulated market or multilateral trading facility or an exchange system of a non-member state that is comparable to a regulated market or multilateral trading facility (including, for thepurposes hereof, The Nasdaq Global Market) and (b) are included in a system that facilitates the (trading and)settlement of Shares (including, for the purposes hereof, the system operated by The Depository TrustCompany) and/or are held by a nominee for such purposes (including, for the purposes hereof, Cede & Co.)that may qualify as the legal holder of the Shares, the provisions of this Article 4C apply mutatis mutandis tothe parties holding an interest in the Shares through such system or nominee. The term "Shareholder" shall beconstrued accordingly 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 aregulated market or multilateral trading facility or an exchange or system of a non-member state that iscomparable to a regulated market or multilateral trading facility (including, for purposes hereof, TheNasdaq 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 thebeneficial 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 potentialor effected change in beneficial ownership of any Shares held by it (including a change in the identityof any beneficial holder or a change in the number of shares beneficially held) that has resulted orwould 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 Boardof Directors of all details actually known to such bare nominee relating to such change;(ii) such bare nominee provides to the Board of Directors, within five (5) business days of any requestby it from time to time, a written statement disclosing the identity of each beneficial holder of Shareslegally held in its name that, together with its Affiliated Parties, holds Excess Shares, and thepercentage 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 bysuch bare nominee;9 and(iii) promptly after such bare nominee becomes aware (including following a notification from the Boardof Directors to the bare nominee) that a beneficial holder on whose behalf such bare nominee holdsShares beneficially owns (together with its Affiliated Parties) Excess Shares, such bare nomineedistributes to such beneficial holder a number of Shares equal to the number of Excess Sharesbeneficially held by such beneficial holder and its Affiliated Parties;provided, however, that (x) such bare nominee shall not be required by the provisions of thissubparagraph b to disclose any information or take any action that it is not permitted to disclose or takepursuant to applicable law, contract or internal compliance policy; and (y) no notification to the Board shallbe required in respect of information otherwise notifiable to the Board pursuant to paragraphs (i) and (ii) ofthis subparagraph b that is timely disclosed to the United States Securities and Exchange Commissionon Schedule 13D or Schedule 13G in accordance with the applicable rules of the United States Securitiesand 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 andvoid.4. If at any time the legal and/or beneficial holdings of a Shareholder or any other party (in each case togetherwith its Affiliated Parties), exceeds the applicable Ownership Cap as a result of a Triggering Event and suchholding of Excess Shares has not been approved by both the Board of Directors and the Priority pursuant toparagraph 10 of this Article (and is not otherwise exempted by paragraph 2 above), the Shareholder of therelevant Excess Shares is obliged (i) if and to the extent the Excess Shares are Class A Ordinary Shares, tosell the Excess Shares in the public market or otherwise within 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 or acquisitionof such Class B Ordinary Shares is held not to be null and void as provided for in paragraph 3, or (b) theShareholder fails to sell the Excess Shares 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 Directors within ten (10) business daysafter the Triggering Event.5. If a Shareholder, within ten (10) business days after a Triggering Event, fails to comply with the obligation ofparagraph 4 of this Article to offer the Excess Shares to the Board of Directors, (i) such Shareholder shall bedeemed to have offered such Excess Shares to the Board of Directors, and (ii) the Board of Directors will beirrevocably authorised, with the right of substitution, to perform such acts and transactions on behalf of suchShareholder as deemed necessary to comply with the provisions of this Article, including but not limited to thesale and transfer of such Excess Shares in accordance with the terms of this Article 4C.6. During the period in which a Shareholder has not effectuated the transfer of Excess10 Shares in accordance with this Article 4C and either the Board of Directors or the Priority have not approvedthe 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 withparagraph 4 or paragraph 5 of this Article, against payment in cash; or (ii) sell the Excess Shares in the publicmarket through a broker or placement agent, hired and instructed by the Board of Directors for this purpose. If(a) the Board of Directors fails to nominate one or more purchasers (or substitute purchasers) in accordancewith the terms and conditions of this paragraph within three (3) months from the date of the (deemed) offerhereunder, or (b) the party or parties so nominated by the Board of Directors fail to accept the offer within three(3) months from the date of the (deemed) offer hereunder, or (c) the Board of Directors fails to sell the ExcessShares in the public market within three (3) months from the date of the (deemed) offer hereunder, therequirements of this Article shall not apply to the offering Shareholder until such Shareholder acquires (or isdeemed 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 thisArticle in the event of the nomination of one or more purchasers pursuant to clause (i) of paragraph 7, shall bethe fair market value of such Shares on the date of the (deemed) offer. Such fair market value shall bedetermined as follows: (i) if the Shares are admitted to trading on a regulated market or multilateral tradingfacility, as referred to in article 1:1 of the Financial Supervision Act (Wet financieel toezicht) or an exchange orsystem of a non-member state that is comparable to a regulated market or multilateral trading facility(including, for purposes hereof, The Nasdaq Global Market), the reported closing sale price on such exchangeor system on such date (or the last trading date immediately prior to such date), or (ii) if no Shares of theCompany are then admitted to such trading, the fair market value of such Share as conclusively determined byan internationally reputable and independent third party appraiser appointed for this purpose by the Board ofDirectors. In the event of a public market sale pursuant to clause (ii) of paragraph 7, the purchase price shallbe such price or prices obtained in good faith by a placement agent engaged by the Board of Directors or inarm’s length brokers transaction(s) in the public market (it being expressly acknowledged that such sales maytake place at any time or times during the three (3)-month period described above and that the sale prices ofthe Excess Shares so sold may vary). The Board of Directors is irrevocably authorised, with the right ofsubstitution, to perform such acts and transactions on behalf of the selling Shareholder as the Board ofDirectors may deem necessary or convenient to effect the sale and transfer of such Excess Shares inaccordance with the terms of this Article 4C.9. For the purpose of enabling the Board of Directors to adequately perform its duties under this Article, eachShareholder is obliged to inform the Board of Directors within ten (10)11 days of any Triggering Event that results in such Shareholder (or, to the knowledge of such Shareholder, anybeneficial holder(s) on whose behalf such Shareholder is holding Shares), together with its (or such beneficialparty’s) Affiliated Parties, exceeding a legal and/or beneficial holding threshold of five percent (5%), tenpercent (10%), fifteen percent (15%), twenty percent (20%), twenty-five percent (25%) or thirty percent (30%)of either the voting rights attached to the issued Class A Ordinary Shares and the Class B Ordinary Shares(taken together) or the number of issued Class A Ordinary Shares and the Class B Ordinary Shares (takentogether). In the event that a Shareholder (or, to the knowledge of such Shareholder, 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 theforegoing notification, notify the Board of Directors of the price or prices paid for the purchase of such ExcessShares. Failing compliance with the obligations laid down in this paragraph, such Shareholder will not beentitled to any dividend and/or voting rights attached to any of his Shares or - in case of a bare nominee holderof Shares on behalf of the beneficial holder(s) thereof - to the Shares held on behalf of such beneficialholder(s). Without limiting the foregoing, each Shareholder shall, within five (5) business days of notice fromthe Board of Directors, (x) identify to the Board of Directors in writing any beneficial holder of Shares registeredin the name of such Shareholder in excess of any of the foregoing thresholds, and (y) if so requested, shallfurnish affidavits or such other proof to the Board of Directors as the Board of Directors reasonably deemsnecessary to verify the legal and/or beneficial ownership of such Shares. For purposes of the precedingsentence, "beneficial ownership" may be determined in accordance with Rule 13d-3 under the United StatesSecurities Exchange Act of 1934, as amended. Notwithstanding, the provisions of this paragraph 9, nonotification to the Board shall be required in respect of information otherwise notifiable to the Board hereunderthat is timely disclosed to the United States Securities and Exchange Commission on Schedule 13D orSchedule 13G in accordance with the applicable rules of the United States Securities and ExchangeCommission. 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 regulated market or multilateral trading facility or an exchangeor 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 ExcessShares by acquisition or subscription or as a result of another Triggering Event (a "Potential Acquiror"),whether in one or more transactions, may seek prior approval first by the Board of Directors and subsequently(upon approval by the Board of Directors) approval by the Priority of such acquisition, subscription or holdingas result of another Triggering Event by submitting a notification in writing to the Board of Directors at theregistered office of the Company (with a copy to the Chairman of the Board of Directors at such address and/oremail address as may be identified from time to time for such purpose on the investor relations section of theCompany’s website at12 www.yandex.ru) setting forth (i) the terms and conditions of such proposed acquisition(s), subscription(s) orother Triggering Event(s), including the identity of the transferring party(ies) and the proposed purchase orsubscription price, if applicable, (ii) a detailed description of the identity of the Potential Acquiror, including thejurisdiction of incorporation or residence of the Potential Acquiror and the identity and jurisdiction ofincorporation 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’sintentions with respect to its shareholding in the Company and any further potential acquisitions ofShares. Within twenty (20) business days of its receipt of such notification, the Board of Directors shall (x)decide on its approval or rejection in relation to the proposed acquisition of Excess Shares by the PotentialAcquiror and (y) inform the Potential Acquiror of its decision. Subsequently, provided that the Board ofDirectors has approved the proposed acquisition of Excess Shares by the Potential Acquiror, the Board ofDirectors 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 shallthen have twenty (20) business days following its receipt of the notification from the Board of Directors todeliver a written notification to the Board of Directors either approving or rejecting the holding of ExcessShares as a result of such acquisition, subscription or other Triggering Event. The Board of Directors shallprovide a copy of such notification to the Proposed Acquiror within three (3) business days of its receiptthereof. In the event that either the Board of Directors or the Priority fails to timely deliver a notification settingforth its approval or rejection of the proposed holding of Excess Shares, it shall be deemed to have withheld itsapproval thereof.11. In the event that any law or regulation of the Russian Federation is adopted or amended to impose a limitationor restriction on the ownership of internet businesses in Russia by non-Russian parties in a manner that isdirectly applicable to the Company and/or its business, then, immediately upon the effectiveness of suchchange in law or regulation, the provisions of this Article 4C, the provisions of Article 14B and the provision ofArticle 28.4, including the approval rights of the Priority Share hereunder and thereunder, shall terminate andthereafter be of no further force or effect; provided however, that the foregoing provision shall not apply in caseof any law or regulation that applies to the Company only by virtue of any activity undertaken by the Companyor 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 thispurpose. Any transfer of the Priority Share is subject to prior written approval of the Board of Directors, actingby 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 ofthis Article, the voting rights, dividend rights and other rights pertaining13 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 thePriority Share, the Priority or the Meeting of 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 maynumber the Shares in a manner determined at its sole discretion.2. Shares may be encumbered with usufruct. At the creation of the right of usufruct in respect of Class AOrdinary Shares it may be provided that the right to vote pertaining to the Class A Ordinary Shares shall vestin the usufructuary. The voting rights pertaining to the Priority Share, the Class B Ordinary Shares and theClass 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 respectof Class A Ordinary Shares it may be provided that the right to vote shall vest in the pledgee. The voting rightspertaining to the Class B Ordinary Shares, the Class C Ordinary Shares and the Preference Shares may notbe transferred to a pledgee.4. The Priority Share may not be pledgedAddresses. Notices and announcements. Register of Shareholders.Article 6.1. Shareholders, pledgees and usufructuaries of Shares must supply their addresses, including their e-mailaddresses (if any), to the Company in writing.2. Notices, announcements and generally all communications intended for the persons referred to in paragraph 1of this Article are to be sent in writing to the 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 of the stock exchange at which Shares are listed concerningshareholders, usufructuaries and pledgees. In the register shall also be recorded each and any release fromliability 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 Netherlandsif such is required for the compliance with foreign legalization or the rules and regulations of the stockexchange 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 powerto resolve to issue Shares and to determine the price of issue and the other terms of issue, which terms mayinclude payment on Shares in a foreign14 currency. Upon receipt of a written proposal of the Board of Directors to this effect the General Meeting maytransfer its aforesaid power to the Board of Directors for a period not exceeding five years. Such designationshall 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 fiveyears. Unless such designation provides otherwise, it may not be withdrawn.2. Within eight (8) days following a resolution by the General Meeting to issue Shares or to designate anotherbody of the Company, the Company shall file the full text of such resolution at the office of the CommercialRegister with which the Company is registered. Within eight (8) days after each issue of Shares, the Companyshall 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 tosubscribe for Shares, but not to the issue of Shares to a person exercising a previously acquired right tosubscribe 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, inaddition, if the Ordinary Share is subscribed at a higher amount, the difference between such amounts must bepaid. It may be agreed that part of the amount to be paid on the Preference Shares - such part not to exceedthree fourths (3/4) of the par value - may remain unpaid until the Company shall make a call in respect of themonies unpaid on the Preference Shares. Such arrangement may only be agreed prior to the resolution toissue Preference Shares and shall require the approval of the body of the Company which has the power toresolve to issue at the time of making such agreement.6. Calls upon the Shareholders in respect of any monies unpaid on their Shares shall be made by the Board ofDirectors by virtue of a resolution of the General Meeting.7. The body of the Company which has the power to resolve to issue Shares may resolve that payment onShares shall be made by some other means than payment 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 shallapply. At the issue of Preference Shares, including those against contribution in kind, each holder ofPreference Shares shall have a pre-emptive right pro rata to the total number of Preference Shares held by himas a portion of the total number of the issued and outstanding Preference Shares on the date of the resolutionto issue the Preference Shares. The pre-emption right of a holder of Preference Shares in respect of an issueof Preference Shares may not be limited. No pre-emption rights shall apply in respect of the issue of thePriority Share.2. Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting may each timein respect of one particular issue of Ordinary Shares, resolve to limit or to exclude the pre-emptive right ofsubscription for the Ordinary Shares, provided15 that such resolution is passed at the 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 OrdinaryShares comes up for discussion and less than one half of the issued capital is represented, a resolution tolimit or exclude the pre-emptive right may only be adopted by at least two-thirds of the votes cast.Any proposal to limit or exclude the pre-emptive right must contain a written explanation of the reasons for theproposal and the choice of the proposed 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 a future date or dates) of issue.Upon receipt of a written proposal of the Board of Directors to this effect, the General Meeting can resolve thatthe pre-emptive right may also be limited or excluded by the Board of Directors, for a period not exceeding fiveyears.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 orto designate the Board of Directors, the Company shall file the full text of such resolution at the office of theCommercial Register.3. A share issue at which Shareholders may exercise a pre-emptive right and the period during which said right isto be exercised shall be announced by the Company to all Shareholders of the relevant class of Shares eitherin writing or by a public announcement in a newspaper taking into account the rules and regulations of thestock exchange at which Shares are listed. The pre-emptive right may be exercised during the period to bedetermined by the body of the Company authorised to issue Shares, that period to be at least two weeks fromthe day following the date of despatch of the announcement.4. The provisions of the preceding paragraphs of this Article shall apply mutatis mutandis to the granting of rightsto 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 totrading on a regulated market or multilateral trading facility, as referred to in article 1:1 of the FinancialSupervision Act (Wet financieel toezicht) or a system of a non-member state that is comparable to a regulatedmarket or multilateral trading facility, the transfer of a registered Ordinary Share or Preference Share or of alimited right (beperkt recht) thereto shall require an instrument intended for such purpose and, save when theCompany itself is a party to such legal act, the written acknowledgement by the Company of the transfer. Theacknowledgement shall be made in the instrument or by a dated statement on the instrument or on a copy orextract thereof mentioning the acknowledgement signed as a true copy thereof by a civil-law notary or thetransferor. Service of such instrument of transfer, copy or extract on the Company shall be deemed toconstitute such acknowledgement.2. The transfer of the Priority Share requires a notarial deed executed by and in front of a16 notary practicing in the Netherlands to which each transferor and 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 Sharesconcerned may not be exercised until the instrument of transfer has been served upon the Company or untilthe Company has acknowledged the transaction in writing or has been deemed to have acknowledged suchtransaction. The provision in the preceding sentence shall not apply if the Company itself has been a party tothe 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, theCompany may acquire fully paid-up Shares provided that:(a) the Company's equity capital, reduced by the acquisition price, is not less than the sum of the issued andpaid-up capital and the reserves to be maintained 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 remainsoutstanding and is not held by the Company; and(c) in case the Company is admitted to trading on a regulated market or multilateral trading facility, asreferred to in article 1:1 of the Financial Supervision Act (Wet financieel toezicht) or a system from a non-member state that is comparable to a regulated market or multilateral trading facility, the par value of theShares to be acquired, already held by the Company or already held by the Company as pledgee or whichare held by Subsidiaries, does not 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 asshown in its most recently adopted balance sheet, reduced by the acquisition price of Shares in the capital ofthe Company and any payments from profit or reserves to others which may have become due by theCompany 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, theacquisition of own Shares under paragraph 2 of this Article shall not be permitted until such time as such mostrecent 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 amaximum of eighteen months (18) only, must specify how many Shares are permitted to be acquired, themanner in which they may be acquired and the permitted upper and lower limits of the price.5. The preceding paragraphs of this Article shall not apply in respect of (i) Shares which the Company mayacquire gratuitously or by universal succession and (ii) Shares that are listed at a stock exchange which areacquired for the purpose of distribution of such17 Shares to employees of the Company 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 andvoid.7. Shares owned by the Company shall not bear any dividend rights unless rights of usufruct are created inrespect of such Shares prior to the acquisition by the Company, in which case the holder of usufruct shall beentitled to any dividends on the underlying Shares. Shares owned by the Company or its Subsidiaries shall notbear any voting rights unless rights of usufruct were created in respect of such Shares prior to the acquisitionof such Shares by the 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 toreduce the issued capital by a cancellation of Shares or by a reduction of the par value of the Shares byamendment of the Articles of Association. Such resolution to reduce the issued capital of the Company mustindicate 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 aparticular class, in respect of which the Articles of Association provide that the same may be cancelledagainst repayment of their par value.3. As provided in clause (ii) of paragraph 2 of this Article 11, Class C Ordinary Shares may be cancelled againstrepayment of their par value.4. If the General Meeting resolves to reduce the par value of the Shares by amendment of the Articles ofAssociation - regardless whether this is done without redemption or against partial repayment on the Shares orupon release from the obligation to pay up the Shares - such reduction must be made pro rata on all Shares ofa particular class.5. A resolution for reduction of capital shall require a majority of at least two thirds of the votes cast, if less thanone half of the issued capital is represented 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 thaneight (8) members and no more than twelve (12) members including at least one (1) Executive Director and atleast 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 amaximum period of three (3) years, provided however, that, unless such director has resigned at an earlierdate, a Director shall cease to hold office on the date of the first General Meeting held in the third yearfollowing the year in which he was appointed Director. Directors shall be immediately eligible for re-appointmentat the18 General Meeting 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 fromits Non-Executive Directors a Chairman of the Board.5 The General Meeting shall adopt general guidelines in respect of the remuneration of the members of theBoard of Directors and of the person(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 themembers of the Board of Directors in respect of the performance of their duties. It being understood that, inaccordance with the principle laid down in Article 13 paragraph 5, Executive Directors shall not participate inthe 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 resolutionrequiring a majority of two thirds (2/3) of the votes cast in a meeting, representing at least fifty percent (50%)of the issued and outstanding capital of the Company. The Director concerned shall be given the opportunity toaccount for his conduct at the General Meeting. For that purpose he may have himself assisted by a legaladviser.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 anabsolute majority of the votes cast in a meeting where at least the majority of members of the Board ofDirectors is present or represented. Each Director shall have one vote. If the voting for and against a proposalis 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 Directorsinternally.The rules of the Board of Directors may inter alia include an allocation of tasks among the members of theBoard of Directors and shall contain provisions concerning the matter in which meetings of the Board ofDirectors are called and held. The rules of the Board of Directors may stipulate that certain resolutions of theBoard of Directors may validly be passed by one or more Directors, provided that the relevant resolutions arewithin the scope 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 remainingDirectors or the only other or remaining Director shall be temporarily entrusted with the management of theCompany.In the event that all Directors or the sole Director shall cease to hold office or be unable to act, themanagement of the Company shall be temporarily entrusted to the person designated or to be designated forthat purpose by the General Meeting.The provisions of the Articles of Association concerning the Board of Directors and the Director(s) individuallyshall apply mutatis mutandis to the person referred to in this paragraph. Furthermore, that person shall berequired to call a General Meeting as soon19 as possible, which General Meeting may 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 Directorshave been consulted on the proposed resolution(s) and none of the members of the Board of Directors haveobjected against this form of resolution. A resolution in writing by the Board of Directors requires a simplemajority 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 fromparticipating in the decision making process of the Board of Directors in this particular matter. If as a directresult of the foregoing, no resolution can be adopted by the Board of Directors, such resolution will be putbefore 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 MeetingArticle 14 A.Decisions of the Board of Directors involving a major change in the Company’s identity or character are subject tothe approval of the General Meeting, including:a. the transfer of the enterprise or practically the whole enterprise of the Company to third parties;b. to enter or to terminate longstanding joint ventures of the Company or a Subsidiary with another legal entity orcompany or as fully liable partner in a limited partnership or a general partnership if this joint venture ortermination 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 theCompany’s assets according to the balance sheet with explanatory notes thereto, or if the Company preparesa consolidated balance sheet according to such consolidated balance sheet with explanatory notes accordingto 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 PriorityArticle 14B.Any decision of the Board of Directors to transfer all or substantially all of the assets of the Company to one ormore third parties, including the sale of its subsidiary: OOO Yandex, a company organised under the laws of theRussian Federation, is subject to the prior approval of the Priority; provided that no approval shall be required inconnection with any corporate reorganisation of the Company’s group so long as the business operations of thegroup continue to be conducted by one or more Russian companies that are, directly or indirectly, wholly owned bythe 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 theCompany.2. The Board of Directors may install committees consisting of members of the Board of Directors, and/ormanagement of the Company and/or its Subsidiaries.20 3. The Board of Directors may designate certain tasks and functions to the committees referred to in the previousparagraph of this Article.4. The Board of Directors may appoint a company secretary to assist the Board of Directors. The companysecretary 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 ineach Executive Director individually.2. If an Executive Director performs any transaction in a private capacity to which transaction the Company alsois a party, or if an Executive Director, acting in his private capacity, conducts any legal action against theCompany other than as referred to in Section 15 of Book 2, each other Executive Director shall have the powerto represent the Company.3. The Board of Directors may grant power of attorney for signature to one or several persons and may alter orrevoke such power of attorney.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 orcorporations, partnerships, joint ventures, trusts or other enterprises by virtue of their functionalresponsibilities 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 anythreatened, pending or completed action, investigation or other proceeding, whether civil, criminal oradministrative (each, a "legal action"), brought by any party other than the Company itself or any Subsidiaries,in relation to acts or omissions 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 theindemnified person and claims by the Company (or any Subsidiaries) itself for reimbursement for claims bythird parties on the ground that the indemnified person was jointly liable toward that third party in addition to theCompany.3. The indemnified person will not be indemnified with respect to claims insofar as they relate to the gaining infact of personal profits, advantages or compensation to which he was not legally entitled, or if the indemnifiedperson shall have been adjudged to be liable for willful misconduct (opzet) or intentional recklessness (bewusteroekeloosheid).4. Any expenses (including reasonable attorneys’ fees and litigation costs) (collectively,"expenses") incurred bythe indemnified person in connection with any legal action shall be21 settled or reimbursed by the Company, but only upon receipt of a written undertaking by that indemnifiedperson that he shall repay such expenses if a competent court in an irrevocable judgment has determined thathe is not entitled to be indemnified.Expenses shall be deemed to include any tax liability which the indemnifiedperson 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), theCompany will settle or reimburse to the indemnified person his reasonable attorneys’ fees and litigation costs,but only upon receipt of a written undertaking by that indemnified person that he shall repay such fees andcosts if a competent court in an irrevocable judgment has resolved the legal action in favor of the Company orthe relevant Subsidiary(s) rather than the indemnified person.6. Expenses incurred by the indemnified person in connection with any legal action will also be settled orreimbursed by the Company in advance of the final disposition of such action, but only upon receipt of awritten undertaking by that indemnified person that he shall repay such expenses if a competent court in anirrevocable judgment has determined that he is not entitled to be indemnified.Such expenses incurred by indemnified persons may be so advanced upon such terms and conditions as theBoard of Directors decides.7. The indemnified person shall not admit any personal financial liability vis-à-vis third parties, nor enter into anysettlement agreement, without the Company’s prior written authorization.The Company and the indemnified person shall use all reasonable endeavors to cooperate with a view toagreeing on the defense of any claims, but in the event that the Company and the indemnified person wouldfail to reach such agreement, the indemnified person shall comply with all reasonable directions given by theCompany, 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 reimbursedby insurers.9. The Company will provide for and bear the cost of adequate insurance covering claims against the indemnifiedperson, unless such insurance cannot be obtained at reasonable terms.10. This Article can be amended without the consent of the indemnified persons as such.However, the indemnityprovided herein shall nevertheless continue to apply to claims and/or expenses incurred in relation to the actsor omissions by the indemnified person during the periods in which this clause was in effect.11. At its discretion, the Board of Directors may have the Company indemnify other members of the managementteam, not being members of the Board of Directors, or other employees, each in case of the Company or of aSubsidiary, comparable to the indemnification provided herein for the benefit of other indemnified persons.GENERAL MEETING.Notice and venue of the General Meeting.Article 18.22 1. Without prejudice to the provisions of Article 25, General Meetings shall be held as frequently as the Board ofDirectors may wish. The power to call the General Meeting shall vest in the Board of Directors, in eachExecutive 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 whocan attend the relevant Meeting and in order to establish the number of votes to be exercised at such GeneralMeeting. In case the Board of Directors resolves to set a registration date for a General Meeting, anyShareholder who wishes to attend such General Meeting must inform the Board of Directors of its intent toattend the General Meeting. At the same time the registration date determines the number of votes that aShareholder may cast in the General Meeting. The aforesaid registration date may not be set less than twenty-eight (28) days prior to the date of the relevant General Meeting. Should the Board of Directors resolve not toset a registration date, then all parties that can prove to hold Shares on the day of the General Meeting mayattend the General Meeting and such Shareholders shall be able exercise votes on the basis of their Sharesheld on the day 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 theBoard of Directors, that request to specify 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 theCompany has decreased to an amount equal to or less than one-half of the paid and called up part of thecapital.If the General Meeting is not held within six weeks after the request referred to under (a), the applicantsthemselves may call the General Meeting - with due observance of the applicable provisions of the law and theArticles of Association - without for that purpose requiring authorisation from the President 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 ownShares with a value of at least fifty million euro (EUR 50,000,000.00) may propose items for the agenda of theGeneral Meeting. Such item for the agenda should together with an explanation be submitted to the Board ofDirectors at least sixty (60) days prior to the day of the General Meeting at which it shall be addressed. TheBoard of Directors will include such items for the agenda in an equal manner as items on the agenda proposedby 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 which the meeting is held. Notice shall be given by means of letters,specifying the subjects to be discussed at the meeting. The notice should also contain information on a formalregistration date (if applicable) for the registration of Shareholders who can attend the relevant Meeting and inorder to establish the number of votes to be exercised at such General Meeting.23 6. General Meetings shall be held in The Hague, Amsterdam, Rotterdam, Utrecht or at Schiphol Airport in themunicipality of Haarlemmermeer. Entirely without prejudice to the provisions of paragraph 5 of this Article, anyresolution passed at a General Meeting held elsewhere - in or outside the Netherlands - shall be valid only ifthe requirements of notice set out in paragraph 3 of this Article have been complied with and the entire issuedand outstanding 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 areentitled to admittance, with the exception of any Director who has been suspended, and admittance shallfurther be granted to any person whom the chairman of the meeting concerned has invited to attend theGeneral Meeting or any part of that meeting.2. If a Shareholder wishes to attend a General Meeting by proxy, he must issue a written power of attorney forthat purpose, which power of attorney must be 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 Boardis not available the Board of Directors shall 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 himselfwishes to keep minutes of the meeting, the chairman shall designate a person charged with keeping theminutes.The minutes shall be adopted by the General Meeting at the same meeting or at a subsequent meeting, inevidence of which the minutes shall be signed by the chairman and the secretary of the meeting at which theminutes were adopted.5. The Chairman of the General Meeting decides on all issues regarding admittance to the meeting, voting andthe 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 COrdinary 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 tocast one hundred (100) votes.2. In determining the extent to which the Shareholders cast votes, are present or are represented, or the extentto which the share capital is represented the Shares in respect of which no votes may be cast shall not betaken into account.3. Unless the Articles of Association stipulate a larger majority, all resolutions of the General Meeting shall bepassed by an absolute majority of the votes 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 different24 method of voting and none of the persons 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 betaken at the same meeting; if then again the votes are equally divided, then - without prejudice to the provisionin 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 candidatesreceive the absolute majority of votes, another vote - where necessary after an interim vote - shall be takenbetween the two candidates who have received the largest number of votes in their favour.If the voting for and against any other proposal than as first referred to in this paragraph is equally divided, thatproposal shall be rejected.7. The General Meeting may resolve to allow a Shareholder to attend and participate in the General Meeting byelectronic means of communication, if and to the extent the identity of the thus attending Shareholder can beverified by the Chairman of the Meeting. Electronic votes submitted to the Board of Directors within twenty-eight (28) days of the General Meeting shall be considered to be issued at the General Meeting, provided themeans of 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 attorneyto exercise any or all of the rights attached to those Shares. Such power of attorney may not be given inrespect of one and the same Share to more than one person simultaneously. The powers referred to in thisparagraph may also vest in usufructuaries and pledgees of Class A Ordinary Shares. The Board of Directorsmay invoke certain 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 mayonly exercise their rights by giving one or several persons written power of attorney to exercise said rights. Ifpower of attorney is given to several persons, such power of attorney must specify in respect of which numberof 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 aGeneral Meeting may also be passed by them outside a meeting, provided that they all express themselves inwriting in favor of the proposal concerned. The persons who have passed a resolution outside a meeting shallimmediately 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 and meetings of the holder of the Priority25 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 Share may 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 shalltake place.3. Notwithstanding the possibility for the holders of any specific class of Shares to agree to convene a meetingelsewhere and notwithstanding the option to pass resolutions in writing in accordance with Article 22, anymeeting shall be held in the Netherlands at the place notified in convocation.4. For the avoidance of doubt, the Priority may approve or decline to approve any Transfer, subscription orholding of Excess Shares hereunder in writing and 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 ormore 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 shalltake place.3. Notwithstanding the possibility for the holders of Preference Shares to agree to convene a meeting elsewhereand notwithstanding the option to pass resolutions in writing in accordance with Article 22, any meeting shallbe 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 extendedby a maximum of six months by the General Meeting on account of special circumstances, the Board ofDirectors shall draw up annual accounts and an annual report on that financial year. To these documents shallbe added the particulars referred to in Section 392, sub-section 1, of Book 2. However, if the provisions ofSection 403 of Book 2 have been applied to the Company and if and to the extent that the General Meetingdoes not decide otherwise:a. the obligation to draw up the annual report; andb. the obligation to add to the annual accounts the particulars referred to in Section 392 of Book 2 shall notapply.If the Company qualifies as a legal entity in the terms of Section 396 sub-section 1 or Section 397 sub-section1 of Book 2 the Company shall not be required to make an annual report unless by law the Company mustestablish a works council or unless no later than26 thth six months from the start of the financial 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 aremissing, this and the reason for such absence shall be stated.4. The Board of Directors shall ensure that the annual accounts and, if required, the annual report and theparticulars added by virtue of Section 392 of Book 2 shall be available at the office of the Company as soon aspossible but not later than as from the date of notice calling the General Meeting intended for the discussionand approval thereof. Said documents shall be open to the inspection of the Shareholders at the office of theCompany 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 theend of the Company's last expired financial 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 Board of Directors. The Board ofDirectors determines the amount of the profit of the Company that shall be allocated to the profit reserves andthe 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 andcalled-up part of the issued capital and the reserves 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 ofPreference Shares shall be entitled to an amount equal to the 12-month European Inter Bank Offered Rate perfirst day of the financial year of the Company in relation to which the relevant dividend entitlement iscalculated, increased with two hundred (200) basis points, of the issued and paid-up capital of the PreferenceShares. The holders of Ordinary Shares and the Priority Share shall be entitled pari passu to the remainderprofits of the Company after any distribution is made pursuant to the first sentence of this paragraph, pro ratato the total number of Class A Ordinary Shares, Class B Ordinary Shares, Class C Ordinary Shares and/or thePriority Share held, albeit that the holders of Class C Ordinary Shares shall be entitled to a maximum amountof one eurocent (EUR 0.01) per Class 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 arejustified.5. For the purposes of determining the allocation of profits, any Shares held by the Company (except asotherwise provided in paragraph 7 of Article 10), and any Shares of which the Company has a usufruct, shallnot be taken into account.6. The Board of Directors may resolve to declare interim dividends out of the profits realised in the currentfinancial year. Dividend payments as referred to in this paragraph may be27 made only if the provision in paragraph 2 of this Article has been met as evidenced by an interim statement ofassets and liabilities 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 theDirectors and with due observance of the provisions of paragraph 3 of this Article. 8. Unless the General Meeting sets a different term for that purpose, dividends shall be made payable withinthirty (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 assetsor 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 toamend the Articles of Association, to conclude a legal merger or demerger or to dissolve the Company in theterms 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 to dissolve the Company, a two/thirds (2/3) majority of the votes cast inthe General Meeting is required.3. For the adoption of a resolution to amend the Articles of Association in which (a) the rights, including but notlimited to the calculation of entitlement to any profits, of holders of Class A Ordinary Shares are takenaway/affected, including but not limited to any change in the dividend or liquidation entitlement of the holdersof Class B Ordinary Shares or Class C Ordinary Shares; (b) the definitions of "Affiliate", "Initial QualifiedHolder", "Non-Qualified B Holder", "Permitted Transferee", "Qualified B Holder" or "Transfer" are changed; (c)any amendment is made to Article 4A, Article 4B or this Article 28; or (d) the number of authorized Class BOrdinary Shares is to be increased; the prior approval of the Meeting of holders of Class A Ordinary Shares isrequired, 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 areaffected (including but not limited to the number of Priority Shares included in the authorized capital of theCompany), 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 PreferenceShares are affected (including but not limited to the number of Preference Shares included in the authorizedcapital of the Company), the prior approval of the Meeting of holders of Preference 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 observanceof the requirement laid down in Article 28.28 2. Unless otherwise resolved by the General Meeting or unless otherwise provided by law, the Directors of theCompany shall be the liquidators of the Company.3. The surplus assets remaining after (i) all the Company’s liabilities have been satisfied, (ii) all profit reservesand other dividend entitlements have been distributed, shall be divided among the holders of the OrdinaryShares 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 maximumamount of one eurocent (EUR 0.01) per Class C Ordinary Share.4. After completion of the liquidation the books, records and other data-carriers of the dissolved Company shallfor a period of seven years remain in the custody of the person whom the liquidators have appointed for thatpurpose in writing.29 Exhibit 8.1 SUBSIDIARIES OF YANDEX N.V. Name of Subsidiary(1) Jurisdiction of OrganizationYandex LLCRussiaGIS Technology LLCRussiaKinopoisk LLCRussiaYandex.Classifieds LLCRussiaYandex.Classifieds Technology LLCRussiaYandex Cloud Technologies LLC RussiaYandex DC LLCRussiaYandex DC Vladimir LLCRussiaYandex.Market LLCRussiaYandex.Market Lab LLCRussiaYandex.OFD LLCRussiaYandex.Probki LLC(2)RussiaYandex.Taxi LLCRussiaINO CPE SDARussiaYandexBel LLCBelarusYandex Information Technology (Shanghai) Co., Ltd.ChinaYandex OyFinlandYandex.Technology GmbHGermanySPB Software Ltd.Hong KongYandex.Israel Ltd.IsraelYandex.Taxi Kazakhstan LLCKazakhstanYandex Auto.ru AGSwitzerlandYandex Europe AGSwitzerlandYandex Services AGSwitzerlandYandex Europe B.V.The NetherlandsYandex.Taxi B.V.The NetherlandsYandex.Market B.V.The NetherlandsYandex Inc.Delaware, USASPB Software Inc.Nevada, USAYandex.Taxi Ukraine LLCUkraineYandex.Ukraine LLC(2)UkraineYandex Advertising Services LCTurkey (1) Directly or indirectly held (2) Yandex N.V. owns a 99.9% 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 factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith 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 inall material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periodspresented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’sinternal 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 overfinancial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theCompany’s internal control over financial reporting. Date: March 22, 2017 By:/S/ ARKADY VOLOZH Name:Arkady Volozh Title: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 factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith 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 inall material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periodspresented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’sinternal 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 overfinancial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theCompany’s internal control over financial reporting. Date: March 22, 2017 By:/S/ GREG ABOVSKY Name:Greg Abovsky Title: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 adoptedpursuant to Section 906 of the Sarbanes-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, 2016,as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned ArkadyVolozh, as Chief Executive Officer of the Company, and Greg Abovsky, as Chief Financial Officer of the Company, eachhereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-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 ofoperations of the Company. Date: March 22, 2017 By:/s/ Arkady Volozh Name:Arkady Volozh Title:Chief Executive Officer By:/s/ Greg Abovsky Name:Greg Abovsky Title: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, Registration StatementNo. 333-213317 on Form S-8 and No. 333-187184 on Form F-3 of our reports dated March 22, 2017, relating to theconsolidated 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 amountsinto U.S. dollar amounts presented solely for the convenience of the readers in the United States of America) and theeffectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 20-F of theCompany for the year ended December 31, 2016. /s/ ZAO Deloitte & Touche CIS Moscow, RussiaMarch 22, 2017
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