EX-99.1 2 a5189942ex991.txt YAHOO! EXHIBIT 99.1 Exhibit 99.1 Yahoo! Reports Second Quarter 2006 Financial Results; Revenues - $1,576 Million, Operating Income - $230 Million, Operating Income Before Depreciation, Amortization and Stock-Based Compensation Expense - $457 Million SUNNYVALE, Calif.--(BUSINESS WIRE)--July 18, 2006--Yahoo! Inc. (Nasdaq:YHOO) today reported results for the second quarter ended June 30, 2006. "Yahoo! continued to make major strides this quarter against some of our most valuable business initiatives, further strengthening our foundation for ongoing growth," said Terry Semel, chairman and chief executive officer, Yahoo!. "Our ability to remain focused on our advertiser and consumer communities, while also continuing to innovate and take advantage of new opportunities in the marketplace, has put us in a great position." Second Quarter 2006 Financial Results -- Revenues were $1,576 million for the second quarter of 2006, a 26 percent increase compared to $1,253 million for the same period of 2005. -- Marketing services revenue was $1,386 million for the second quarter of 2006, a 27 percent increase compared to $1,094 million for the same period of 2005. -- Fees revenue was $190 million for the second quarter of 2006, a 19 percent increase compared to $159 million for the same period of 2005. -- Revenues excluding traffic acquisition costs ("TAC") were $1,123 million for the second quarter of 2006, a 28 percent increase compared to $875 million for the same period of 2005. -- Gross profit for the second quarter of 2006 was $930 million, a 24 percent increase compared to $753 million for the same period of 2005. -- Operating income for the second quarter of 2006 was $230 million (including $100 million for stock-based compensation expense recorded under the fair value method), a 12 percent decrease compared to $261 million (including $11 million for stock-based compensation expense recorded under the intrinsic value method) for the same period of 2005. -- Operating income before depreciation, amortization and stock-based compensation expense for the second quarter of 2006 was $457 million, a 24 percent increase compared to $368 million for the same period of 2005. -- Cash flow from operating activities for the second quarter of 2006 was $430 million, a 6 percent increase compared to $404 million for the same period of 2005. -- Free cash flow for the second quarter of 2006 was $358 million, a 19 percent increase compared to $300 million for the same period of 2005. -- Net income for the second quarter of 2006 was $164 million or $0.11 per diluted share (including $73 million of stock-based compensation expense, net of tax, recorded under the fair value method), compared to $755 million or $0.51 per diluted share for the same period of 2005 (including $7 million of stock-based compensation expense, net of tax, recorded under the intrinsic value method) or compared to adjusted net income of $152 million or $0.10 per diluted share (including $57 million of stock-based compensation, net of tax, calculated under the fair value method and excluding gains of $552 million, net of tax, on the sale of certain investments and settlements) for the second quarter of 2005. -- Adjusted net income excluding stock-based compensation expense, net of tax, recorded under the fair value method for the second quarter of 2006 was $237 million or $0.16 per diluted share. This compares to adjusted net income of $209 million or $0.14 per diluted share, excluding stock-based compensation expense, net of tax, recorded under the intrinsic value method and gains on the sale of certain investments and settlements, net of tax, for the same period of 2005. -- Explanations of the Company's non-GAAP financial measures and the related reconciliations to the GAAP financial measures the Company considers most comparable are included in the accompanying "Note to Unaudited Condensed Consolidated Statements of Operations" and the "Reconciliations to Unaudited Condensed Consolidated Statements of Operations". "We continued to execute on our plan in the second quarter -- delivering strong revenue growth, profitability, and returns on our significant free cash flow -- while also investing in our business to position the company for future growth," said Susan Decker, chief financial officer, Yahoo!. "We believe these investments will expand our unique collection of online services to best meet the objectives of our customers and users, generating maximum value for our network." Segment Financial Results -- United States revenues for the second quarter of 2006 were $1,070 million, a 23 percent increase compared to $870 million for the same period of 2005. -- International revenues for the second quarter of 2006 were $506 million, a 32 percent increase compared to $383 million for the same period of 2005. -- United States segment operating income before depreciation, amortization and stock-based compensation expense for the second quarter of 2006 was $341 million, a 17 percent increase compared to $291 million for the same period of 2005. -- International segment operating income before depreciation, amortization and stock-based compensation expense for the second quarter of 2006 was $116 million, a 51 percent increase compared to $77 million for the same period of 2005. Cash Flow Information Free cash flow was $358 million in the second quarter of 2006 compared to $300 million for the same period of 2005. In addition to free cash flow, Yahoo! generated $102 million from the issuance of common stock as a result of the exercise of employee stock options. These sources of cash were offset by $250 million used for structured stock repurchase transactions, $51 million used for direct stock repurchases and $61 used for acquisitions. Cash, cash equivalents and investments in marketable debt securities were $3,965 million at June 30, 2006 as compared to $3,833 million at March 31, 2006, an increase of $132 million. Please refer to the "Note to Unaudited Condensed Consolidated Statements of Operations" for definitions of certain key financial measures used here and in the "Business Outlook" attached to this press release. Quarterly Conference Call Yahoo! will host a conference call to discuss second quarter results at 5:00 p.m. Eastern Time today. A live webcast of the conference call, together with supplemental financial information, can be accessed through the Company's Investor Relations website at http://yhoo.client.shareholder.com/earnings.cfm. In addition, an archive of the webcast can be accessed through the same link. An audio replay of the call will be available following the conference call by calling 877-213-9653 or 630-652-3041, reservation number: 15156743. About Yahoo! Yahoo! Inc. is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! seeks to provide online products and services essential to users' lives, and offers a full range of tools and marketing solutions for businesses to connect with Internet users around the world. Yahoo! is headquartered in Sunnyvale, California. This press release includes the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission: revenues excluding traffic acquisition costs, operating income before depreciation, amortization and stock-based compensation expense, free cash flow, and adjusted net income and adjusted net income per share. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. See "Note to Unaudited Condensed Consolidated Statements of Operations" and "Reconciliations to Unaudited Condensed Consolidated Statements of Operations" included in this press release for further information regarding these non-GAAP financial measures. This press release and its attachments contain forward-looking statements that involve risks and uncertainties concerning Yahoo!'s expected financial performance (as described without limitation in the Business Outlook section and the quotations from management in this press release), as well as Yahoo!'s strategic and operational plans. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, the Company's ability to compete with new or existing competitors; reduction in spending by, or loss of, marketing services customers; the demand by customers for Yahoo!'s premium services; acceptance by users of new products and services; risks related to joint ventures and the integration of recent acquisitions; risks related to the Company's international operations; failure to manage growth and diversification; adverse results in litigation, including intellectual property infringement claims; the Company's ability to protect its intellectual property and the value of its brands; dependence on key personnel; dependence on third parties for technology, services, content and distribution; and general economic conditions. All information set forth in this release and its attachments is as of July 18, 2006. Yahoo! does not intend, and undertakes no duty, to update this information to reflect future events or circumstances. More information about potential factors that could affect the Company's business and financial results is included under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 which are on file with the SEC and available at the SEC's website at www.sec.gov. Additional information will also be set forth in those sections in Yahoo!'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, which will be filed with the SEC in the third quarter of 2006. Yahoo! and the Yahoo! logos are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or registered trademarks of their respective owners. Yahoo! Inc. Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ---------------------- --------------------- 2005 2006 2005 2006 ---------------------- --------------------- Revenues $1,252,997 $1,575,854 $2,426,739 $3,142,909 Cost of revenues (1) 500,158 645,767 967,082 1,303,710 ---------- ---------- ---------- ---------- Gross profit 752,839 930,087 1,459,657 1,839,199 ---------- ---------- ---------- ---------- Operating expenses: Sales and marketing (2) 247,915 325,845 479,924 657,005 Product development (2) 129,285 208,743 251,896 426,320 General and administrative (2) 87,128 131,909 165,387 260,214 Amortization of intangibles (1) 27,154 34,003 53,730 64,861 --------------------- ---------- ---------- Total operating expenses 491,482 700,500 950,937 1,408,400 ---------- ---------- ---------- ---------- Income from operations 261,357 229,587 508,720 430,799 Other income, net 979,736 36,090 1,029,730 71,526 ---------- ---------- ---------- ---------- Income before income taxes, earnings in equity interests and minority interests 1,241,093 265,677 1,538,450 502,325 Provision for income taxes (515,855) (122,698) (636,290) (225,630) Earnings in equity interests 33,105 21,634 62,483 48,071 Minority interests in operations of consolidated subsidiaries (3,654) (283) (5,394) (577) ---------- ---------- ---------- ---------- Net income $ 754,689 $ 164,330 $ 959,249 $ 324,189 ========== ========== ========== ========== Net income per share - diluted $ 0.51 $ 0.11 $ 0.65 $ 0.22 ========== ========== ========== ========== Shares used in per share calculation - diluted 1,484,200 1,476,642 1,481,114 1,484,809 ========== ========== ========== ========== (2) Stock-based compensation expense was allocated as follows: Cost of revenues $ - $ 1,582 $ - $ 3,267 Sales and marketing 1,509 38,489 2,999 77,356 Product development 3,741 36,170 7,003 73,887 General and administrative 5,698 23,482 10,412 53,854 ---------- ---------- ---------- ---------- Total stock-based compensation expense $ 10,948 $ 99,723 $ 20,414 $ 208,364 ========== ========== ========== ========== ---------------------------------------------------------------------- Supplemental Financial Data (See Note) --------------------------- Revenues excluding TAC $ 875,112 $1,122,655 $1,695,867 $2,210,353 Operating income before depreciation, amortization and stock- based compensation expense $ 368,440 $ 456,858 $ 713,502 $ 891,790 Free cash flow $ 299,874 $ 357,830 $ 617,440 $ 700,776 Adjusted net income per diluted share excluding stock-based compensation expense $ 0.14 $ 0.16 $ 0.27 $ 0.32 Adjusted net income per diluted share including fair value stock-based compensation expense $ 0.10 $ 0.11 $ 0.20 $ 0.22 ---------------------------------------------------------------------- (1) Yahoo! has changed its classification of amortization expense related to developed technology and patents acquired through acquisitions. Amortization expense of $14 million and $28 million for the three and six months ended June 30, 2005, respectively, has been reclassified to cost of revenues from operating expenses. (2) Prior to January 1, 2006, Yahoo! accounted for stock-based compensation under Accounting Principles Board, Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, Yahoo! historically used the intrinsic value method to account for stock-based compensation expense. As of January 1, 2006, Yahoo! accounts for stock-based compensation expense under the fair value method in accordance with Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"). As Yahoo! adopted the modified prospective transition method, results for prior periods have not been restated under the fair value method for GAAP purposes. Yahoo! is presenting a non-GAAP adjusted net income per diluted share financial measure which includes stock-based compensation expense calculated under the fair value method for all periods presented. Yahoo! is also presenting a non-GAAP adjusted net income per diluted share financial measure which excludes stock-based compensation expense for all periods presented. Yahoo! Inc. Note to Unaudited Condensed Consolidated Statements of Operations This press release includes the non-GAAP financial measures of revenues excluding traffic acquisition costs or TAC, operating income before depreciation, amortization and stock-based compensation expense, free cash flow and adjusted net income and adjusted net income per share, which are reconciled to gross profit, income from operations, cash flow from operating activities, and net income and net income per share, respectively, which we believe are the most comparable GAAP measures. We use these non-GAAP financial measures for internal managerial purposes, when publicly providing our business outlook, and to facilitate period-to-period comparisons. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, gross profit, income from operations, cash flow from operating activities and net income and net income per share calculated in accordance with generally accepted accounting principles. Revenues excluding TAC is defined as gross profit plus other cost of revenues. Under GAAP, both our revenues and cost of revenues include TAC. In defining revenues excluding TAC as our non-GAAP gross profit measure, we have removed TAC from both revenues and cost of revenues. TAC consists of payments made to affiliates that have integrated our sponsored search offerings into their websites and payments made to companies that direct consumer and business traffic to the Yahoo! website. We present revenues excluding TAC: (1) to provide a metric for our investors to analyze and value our Company and (2) to provide investors one of the primary metrics used by the Company for evaluation and decision-making purposes. We provide revenues excluding TAC because we believe it is useful to investors in valuing our Company. One of the ways investors value companies is to apply a multiple to revenues. Since a significant portion of the GAAP revenues associated with our sponsored search offerings is paid to our third party affiliates, we believe investors find it more meaningful to apply multiples to revenues excluding TAC to assess our value as this avoids "double counting" revenues that are paid to, and being reported by, our third party affiliates. Further, management uses revenues excluding TAC for evaluating the performance of our business, making operating decisions, for budgeting purposes, and as a factor in determining management compensation. A limitation of revenues excluding TAC is that it is a measure which we have defined for internal and investor purposes that may be unique to the Company and therefore it may not enhance the comparability of our results to other companies in our industry who have similar business arrangements but address the impact of TAC differently. Operating income before depreciation, amortization and stock-based compensation expense is defined as income from operations before depreciation, amortization of intangible assets and stock-based compensation expense. We consider operating income before depreciation, amortization and stock-based compensation expense to be an important indicator of the operational strength of the Company. This measure eliminates the effects of depreciation, amortization of intangible assets and stock-based compensation expense from period to period, which we believe is useful to management and investors in evaluating the operating performance of the Company, as depreciation and amortization costs are not directly attributable to the underlying performance of the Company's business operations. A limitation associated with this measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company's businesses. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. A further limitation associated with this measure is that it does not include stock-based compensation expense related to our workforce. Free cash flow is defined as cash flow from operating activities, less net capital expenditures and dividends received and including the excess tax benefits from stock-based compensation. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Adjusted net income is defined as net income excluding certain gains, losses and expenses and their related tax effects that we do not believe are indicative of our ongoing operating results and further adjusted for stock-based compensation expense under two different methods. Effective January 1, 2006, we adopted SFAS 123R under the modified prospective transition method and therefore have recorded stock-based compensation expense under the fair value method for the three and six months ended June 30, 2006. Prior to January 1, 2006, including the three and six months ended June 30, 2005, we recorded stock-based compensation expense under the intrinsic value method. We have included two non-GAAP measures for adjusted net income and adjusted net income per share. In one adjusted net income measure, we have excluded stock-based compensation expense in addition to certain gains, losses and expenses and their related tax effects. In the alternative adjusted net income measure, we have included our calculation of stock-based compensation expense calculated under the fair value method (as previously disclosed) for the three and six months ended June 30, 2005, in addition to excluding certain gains, losses and expenses and their related tax effects, so that both presented periods include stock-based compensation expense under the fair value method. We consider adjusted net income to be a profitability measure which facilitates the forecasting of our operating results for future periods and allows for the comparison of our results to historical periods and to other companies in our industry. A limitation of adjusted net income is that it does not include all items that impact our net income and net income per share for the period. Yahoo! Inc. Reconciliations to Unaudited Condensed Consolidated Statements of Operations (in thousands) Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2005 2006 2005 2006 -------------------------------------------- Revenues for groups of similar services: Marketing services $1,094,301 $1,386,245 $2,119,097 $2,767,099 Fees 158,696 189,609 307,642 375,810 ---------- ---------- ---------- ---------- Total revenues $1,252,997 $1,575,854 $2,426,739 $3,142,909 ========== ========== ========== ========== Revenues by segment: United States $ 869,517 $1,070,134 $1,688,243 $2,167,172 International 383,480 505,720 738,496 975,737 ---------- ---------- ---------- ---------- Total revenues $1,252,997 $1,575,854 $2,426,739 $3,142,909 ========== ========== ========== ========== Cost of revenues: Traffic acquisition costs ("TAC") $ 377,885 $ 453,199 $ 730,872 $ 932,556 Other cost of revenues 122,273 192,568 236,210 371,154 ---------- ---------- ---------- ---------- Total cost of revenues $ 500,158 $ 645,767 $ 967,082 $1,303,710 ========== ========== ========== ========== Revenues excluding TAC: Gross profit $ 752,839 $ 930,087 $1,459,657 $1,839,199 Other cost of revenues 122,273 192,568 236,210 371,154 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 875,112 $1,122,655 $1,695,867 $2,210,353 ========== ========== ========== ========== Revenues excluding TAC by segment: United States: Gross profit $ 562,712 $ 679,116 $1,090,609 $1,361,507 Other cost of revenues 97,333 157,388 188,328 301,662 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 660,045 $ 836,504 $1,278,937 $1,663,169 ========== ========== ========== ========== International: Gross profit $ 190,127 $ 250,971 $ 369,048 $ 477,692 Other cost of revenues 24,940 35,180 47,882 69,492 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 215,067 $ 286,151 $ 416,930 $ 547,184 ========== ========== ========== ========== Operating income before depreciation, amortization and stock-based compensation expense: Income from operations $ 261,357 $ 229,587 $ 508,720 $ 430,799 Depreciation and amortization 96,135 127,548 184,368 252,627 Stock-based compensation expense 10,948 99,723 20,414 208,364 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock- based compensation expense $ 368,440 $ 456,858 $ 713,502 $ 891,790 ========== ========== ========== ========== Operating income before depreciation, amortization and stock-based compensation expense by segment: Operating income before depreciation, amortization and stock- based compensation expense - United States $ 291,244 $ 340,598 $ 561,659 $ 675,867 Operating income before depreciation, amortization and stock- based compensation expense - International 77,196 116,260 151,843 215,923 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock- based compensation expense $ 368,440 $ 456,858 $ 713,502 $ 891,790 ========== ========== ========== ========== United States: Income from operations $ 202,275 $ 148,144 $ 392,293 $ 285,095 Depreciation and amortization 78,591 103,081 150,194 203,638 Stock-based compensation expense 10,378 89,373 19,172 187,134 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock- based compensation expense - United States $ 291,244 $ 340,598 $ 561,659 $ 675,867 ========== ========== ========== ========== International: Income from operations $ 59,082 $ 81,443 $ 116,427 $ 145,704 Depreciation and amortization 17,544 24,467 34,174 48,989 Stock-based compensation expense 570 10,350 1,242 21,230 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock- based compensation expense - International $ 77,196 $ 116,260 $ 151,843 $ 215,923 ========== ========== ========== ========== Free cash flow: Cash flow from operating activities $ 404,195 $ 429,684 $ 789,910 $ 814,565 Acquisition of property and equipment, net (93,651) (175,078) (161,800) (316,825) Dividends received (10,670) (12,908) (10,670) (12,908) Excess tax benefits from stock-based compensation - 116,132 - 215,944 ---------- ---------- ---------- ---------- Free cash flow $ 299,874 $ 357,830 $ 617,440 $ 700,776 ========== ========== ========== ========== Yahoo! Inc. Reconciliations to Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Adjusted Net Income Excluding Stock-based Compensation Expense Three Months Ended June 30, 2005 ------------------------------------- Reported Adjustments Adjusted ------------------------------------- Revenues $1,252,997 $ - $1,252,997 Cost of revenues 500,158 - 500,158 ---------- ----------- ---------- Gross profit 752,839 - 752,839 ---------- ----------- ---------- Operating expenses: Sales and marketing 247,915 (1,509)(a) 246,406 Product development 129,285 (3,741)(a) 125,544 General and administrative 87,128 (5,698)(a) 81,430 Amortization of intangibles 27,154 - 27,154 ---------- ----------- ---------- Total operating expenses 491,482 (10,948) 480,534 ---------- ----------- ---------- Income from operations 261,357 10,948 272,305 Other income, net 979,736 (949,242)(c) 30,494 ---------- ----------- ---------- Income before income taxes, earnings in equity interests and minority interests 1,241,093 (938,294) 302,799 Provision for income taxes (515,855) 392,732 (d) (123,123) Earnings in equity interests 33,105 - 33,105 Minority interests in operations of consolidated subsidiaries (3,654) - (3,654) ---------- ----------- ---------- Net income $ 754,689 $ (545,562) $ 209,127 ========== =========== ========== Net income per share - diluted $ 0.51 $ 0.14 ========== ========== Shares used in per share calculation - diluted 1,484,200 1,484,200 ========== ========== Three Months Ended June 30, 2006 ------------------------------------ Reported Adjustments Adjusted ------------------------------------ Revenues $1,575,854 $ - $1,575,854 Cost of revenues 645,767 (1,582)(b) 644,185 ---------- ----------- ---------- Gross profit 930,087 1,582 931,669 ---------- ----------- ---------- Operating expenses: Sales and marketing 325,845 (38,489)(b) 287,356 Product development 208,743 (36,170)(b) 172,573 General and administrative 131,909 (23,482)(b) 108,427 Amortization of intangibles 34,003 - 34,003 ---------- ----------- ---------- Total operating expenses 700,500 (98,141) 602,359 ---------- ----------- ---------- Income from operations 229,587 99,723 329,310 Other income, net 36,090 - 36,090 ---------- ----------- ---------- Income before income taxes, earnings in equity interests and minority interests 265,677 99,723 365,400 Provision for income taxes (122,698) (26,926)(d) (149,624) Earnings in equity interests 21,634 - 21,634 Minority interests in operations of consolidated subsidiaries (283) - (283) ---------- ----------- ---------- Net income $ 164,330 $ 72,797 $ 237,127 ========== =========== ========== Net income per share - diluted $ 0.11 $ 0.16 ========== ========== Shares used in per share calculation - diluted 1,476,642 1,476,642 ========== ========== Six Months Ended June 30, 2005 ------------------------------------- Reported Adjustments Adjusted ------------------------------------- Revenues $2,426,739 $ - $2,426,739 Cost of revenues 967,082 - 967,082 ---------- ----------- ---------- Gross profit 1,459,657 - 1,459,657 ---------- ----------- ---------- Operating expenses: Sales and marketing 479,924 (2,999)(a) 476,925 Product development 251,896 (7,003)(a) 244,893 General and administrative 165,387 (10,412)(a) 154,975 Amortization of intangibles 53,730 - 53,730 ---------- ----------- ---------- Total operating expenses 950,937 (20,414) 930,523 ---------- ----------- ---------- Income from operations 508,720 20,414 529,134 Other income, net 1,029,730 (974,927)(c) 54,803 ---------- ----------- ---------- Income before income taxes, earnings in equity interests and minority interests 1,538,450 (954,513) 583,937 Provision for income taxes (636,290) 399,313 (d) (236,977) Earnings in equity interests 62,483 - 62,483 Minority interests in operations of consolidated subsidiaries (5,394) - (5,394) ---------- ----------- ---------- Net income $ 959,249 $ (555,200) $ 404,049 ========== =========== ========== Net income per share - diluted $ 0.65 $ 0.27 ========== ========== Shares used in per share calculation - diluted 1,481,114 1,481,114 ========== ========== Six Months Ended June 30, 2006 ------------------------------------ Reported Adjustments Adjusted ------------------------------------ Revenues $3,142,909 $ - $3,142,909 Cost of revenues 1,303,710 (3,267)(b) 1,300,443 ---------- ----------- ---------- Gross profit 1,839,199 3,267 1,842,466 ---------- ----------- ---------- Operating expenses: Sales and marketing 657,005 (77,356)(b) 579,649 Product development 426,320 (73,887)(b) 352,433 General and administrative 260,214 (53,854)(b) 206,360 Amortization of intangibles 64,861 - 64,861 ---------- ----------- ---------- Total operating expenses 1,408,400 (205,097) 1,203,303 ---------- ----------- ---------- Income from operations 430,799 208,364 639,163 Other income, net 71,526 - 71,526 ---------- ----------- ---------- Income before income taxes, earnings in equity interests and minority interests 502,325 208,364 710,689 Provision for income taxes (225,630) (64,073)(d) (289,703) Earnings in equity interests 48,071 - 48,071 Minority interests in operations of consolidated subsidiaries (577) - (577) ---------- ----------- ---------- Net income $ 324,189 $ 144,291 $ 468,480 ========== =========== ========== Net income per share - diluted $ 0.22 $ 0.32 ========== ========== Shares used in per share calculation - diluted 1,484,809 1,484,809 ========== ========== Yahoo! Inc. Reconciliations to Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Adjusted Net Income Including Stock-based Compensation Expense Under the Fair Value Method Three Months Ended June 30, 2005 ---------------------------------------- Reported Adjustments Adjusted ---------------------------------------- Net income $ 754,689 $ (602,709)(e, g)$ 151,980 ========== =========== ========== Net income per share - diluted $ 0.51 $ 0.10 ========== ========== Shares used in per share calculation - diluted 1,484,200 1,513 (h) 1,485,713 ========== =========== ========== Three Months Ended June 30, 2006 --------------------------------------- Reported Adjustments Adjusted --------------------------------------- Net income $ 164,330 (f) $ 164,330 ========== ========== Net income per share - diluted $ 0.11 $ 0.11 ========== ========== Shares used in per share calculation - diluted 1,476,642 1,476,642 ========== ========== Six Months Ended June 30, 2005 ---------------------------------------- Reported Adjustments Adjusted ---------------------------------------- Net income $ 959,249 $ (669,393)(e, g)$ 289,856 ========== =========== ========== Net income per share - diluted $ 0.65 $ 0.20 ========== ========== Shares used in per share calculation - diluted 1,481,114 1,384 (h) 1,482,498 ========== =========== ========== Six Months Ended June 30, 2006 --------------------------------------- Reported Adjustments Adjusted --------------------------------------- Net income $ 324,189 (f) $ 324,189 ========== ========== Net income per share - diluted $ 0.22 $ 0.22 ========== ========== Shares used in per share calculation - diluted 1,484,809 1,484,809 ========== ========== Notes: (a) To eliminate stock-based compensation expense as measured using the intrinsic value method under APB 25. (b) To eliminate stock-based compensation expenses as measured using the fair value method under SFAS 123R. (c) To eliminate gains on the sale of certain investments and settlements. (d) To eliminate income tax effects associated with adjustments referenced in (a), (b), and (c). (e) To include fair value stock-based compensation expense of $57 million and $114 million, net of tax, respectively, using the fair value method under SFAS 123 as previously disclosed and exclude recorded stock-based compensation expense of $7 million and $12 million, net of tax, respectively, using the intrinsic value method under APB 25 for the three and six months ended June 30, 2005. (f) Fair value stock-based compensation expenses calculated under SFAS 123R is included in the reported figures and therefore no adjustment is made. (g) To eliminate gains of $552 million and $567 million, net of tax, respectively, on the sale of certain investments and settlements for the three and six months ended June 30, 2005. (h) To adjust the number of shares used in the diluted net income per share count for the impact of applying SFAS 123. Yahoo! Inc. Business Outlook Business Outlook The following business outlook is based on current information and expectations as of July 18, 2006. Yahoo!'s business outlook as of today is expected to be available on the Company's Investor Relations website throughout the current quarter. Yahoo! does not expect, and undertakes no obligation, to update the outlook prior to the release of the Company's next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may update the outlook or any portion thereof at any time at its discretion. Three months Year ending ending September 30, December 31, 2006 2006 -------------- ---------------- Revenues excluding TAC (3) outlook (in millions): Gross profit $925 - $1,015 $3,820 - $4,030 Other cost of revenues 190 - 210 780 - 820 -------------- ---------------- Revenues excluding TAC $1,115 - $1,225 $4,600 - $4,850 ================ ================ Operating income before depreciation, amortization and stock-based compensation expense (3) outlook (in millions): Income from operations $185 - $225 $935 - $1,025 Depreciation and amortization 145 - 155 550 - 580 Stock-based compensation expense 115 - 125 430 - 450 -------------- ---------------- Operating income before depreciation, amortization and stock-based compensation expense $445 - $505 $1,915 - $2,055 ============== ================ (3) Refer to Note to Unaudited Condensed Consolidated Statements of Operations. Yahoo! Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------------- 2005 2006 2005 2006 ---------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 754,689 $ 164,330 $ 959,249 $ 324,189 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 54,721 70,587 102,751 139,201 Amortization of intangible assets 41,414 56,961 81,617 113,426 Stock-based compensation expense 10,948 99,723 20,414 208,364 Tax benefits from stock-based compensation 495,041 84,536 602,568 164,281 Excess tax benefits from stock-based compensation - (116,132) - (215,944) Earnings in equity interests (33,105) (21,634) (62,483) (48,071) Dividends received 10,670 12,908 10,670 12,908 Minority interests in operations of consolidated subsidiaries 3,654 283 5,394 577 (Gain)/loss from sale of investments, assets and other, net (937,998) 5,207 (952,266) (2,070) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (47,740) (13,254) (78,157) (53,355) Prepaid expenses and other (8,868) (4,604) 10,240 (15,963) Accounts payable 10,433 28,100 (14,193) 63,753 Accrued expenses and other liabilities 34,597 42,327 79,816 88,596 Deferred revenue 15,739 20,346 24,290 34,673 ----------- ---------- ----------- ---------- Net cash provided by operating activities 404,195 429,684 789,910 814,565 ----------- ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net (93,651) (175,078) (161,800) (316,825) Purchases of marketable debt securities (3,838,067) (313,571) (5,474,827) (648,333) Proceeds from sales and maturities of marketable debt securities 3,597,080 409,679 5,374,465 845,674 Acquisitions, net of cash acquired (72,404) (60,833) (126,374) (55,329) Proceeds from sales of marketable equity securities 958,914 - 970,296 - Other investing activities, net (49,913) (299) (38,595) (644) ----------- ---------- ----------- ---------- Net cash provided by (used in) investing activities 501,959 (140,102) 543,165 (175,457) ----------- ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 212,420 102,306 302,724 189,825 Repurchases of common stock - (51,311) (164,895) (690,209) Structured stock repurchases, net (263,729) (250,000) (359,931) (227,705) Excess tax benefits from stock-based compensation - 116,132 - 215,944 Other financing activities, net - - 800 - ----------- ---------- ----------- ---------- Net cash provided by (used in) financing activities (51,309) (82,873) (221,302) (512,145) ----------- ---------- ----------- ---------- Effect of exchange rate changes on cash and cash equivalents (25,332) 22,419 (15,073) 34,567 Net change in cash and cash equivalents 829,513 229,128 1,096,700 161,530 Cash and cash equivalents, beginning of period 1,090,910 1,362,095 823,723 1,429,693 ----------- ---------- ----------- ---------- Cash and cash equivalents, end of period $ 1,920,423 $1,591,223 $ 1,920,423 $1,591,223 =========== ========== =========== ========== Supplemental schedule of acquisition-related activities: Cash paid for acquisitions $ 73,455 $ 60,983 $ 127,452 $ 63,006 Cash acquired in acquisitions (1,051) (150) (1,078) (7,677) ----------- ---------- ----------- ---------- $ 72,404 $ 60,833 $ 126,374 $ 55,329 =========== ========== =========== ========== Common stock, restricted stock and stock options issued in connection with acquisitions $ 6,615 $ - $ 44,381 $ - =========== ========== =========== ========== Yahoo! Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands) December 31, June 30, 2005 2006 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,429,693 $ 1,591,223 Marketable debt securities 1,131,141 1,097,332 Accounts receivable, net 721,723 792,451 Prepaid expenses and other current assets 166,976 173,699 ------------ ------------ Total current assets 3,449,533 3,654,705 Long-term marketable debt securities 1,439,014 1,276,117 Property and equipment, net 697,522 884,005 Goodwill 2,895,557 2,975,278 Intangible assets, net 534,615 454,040 Other assets 57,192 136,175 Investments in equity interests 1,758,401 1,810,242 ------------ ------------ Total assets $ 10,831,834 $ 11,190,562 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 70,291 $ 139,378 Accrued expenses and other current liabilities 827,589 935,008 Deferred revenue 306,172 348,505 ------------ ------------ Total current liabilities 1,204,052 1,422,891 Long-term deferred revenue 67,792 64,189 Long-term debt 749,995 749,971 Other long-term liabilities 243,580 247,928 Minority interests in consolidated subsidiaries - 7,921 Stockholders' equity 8,566,415 8,697,662 ------------ ------------ Total liabilities and stockholders' equity $ 10,831,834 $ 11,190,562 ============ ============ CONTACT: Yahoo! Inc. Kelly Delaney, 408-349-2579 (Media Relations) kellyd@yahoo-inc.com Cathy La Rocca, 408-349-5188 (Investor Relations) cathy@yahoo-inc.com or OutCast Communications Kim Milosevich, 415-345-4734 (Media Relations) kim@outcastpr.com