-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I7jqiLR7qlAvNjamwoOBOqflK9ND2zd5tOCGQ9dbQ3HVBkEQJFiFCrBS27j+NabC Ec2a0LtlFn0NCAY8kfTflg== 0001157523-07-009871.txt : 20071016 0001157523-07-009871.hdr.sgml : 20071016 20071016164526 ACCESSION NUMBER: 0001157523-07-009871 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20071016 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20071016 DATE AS OF CHANGE: 20071016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YAHOO INC CENTRAL INDEX KEY: 0001011006 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 770398689 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28018 FILM NUMBER: 071174633 BUSINESS ADDRESS: STREET 1: YAHOO! INC. STREET 2: 701 FIRST AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4083493300 MAIL ADDRESS: STREET 1: 701 FIRST AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94089 8-K 1 a5518928.txt YAHOO! INC., 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 October 16, 2007 Date of Report (Date of earliest event reported) Yahoo! Inc. (Exact name of registrant as specified in its charter) Delaware 0-28018 77-0398689 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 701 First Ave. Sunnyvale, California 94089 (Address of principal executive offices, including zip code) (408) 349-3300 (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition On October 16, 2007, Yahoo! Inc., a Delaware corporation ("Yahoo!") announced its financial results for the third quarter ended September 30, 2007 and certain other information. A copy of Yahoo!'s press release announcing these financial results and certain other information is attached hereto as Exhibit 99.1. The information in this report, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Yahoo! under the Securities Act of 1933, as amended, or the Exchange Act. Item 9.01 Financial Statements and Exhibits (d) Exhibits. The following exhibit is furnished with this report on Form 8-K: 99.1 Yahoo! Inc. Press Release dated October 16, 2007. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. YAHOO! INC. By: /s/ Blake Jorgensen ----------------------------------- Blake Jorgensen Chief Financial Officer (Principal Financial Officer) Date: October 16, 2007 YAHOO! INC. INDEX TO EXHIBITS Exhibit Number Description - -------------- ----------- 99.1 Yahoo! Inc. Press Release dated October 16, 2007 EX-99.1 2 a5518928ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Yahoo! Reports Third Quarter 2007 Financial Results Revenues - $1,768 Million Operating Income - $150 Million Operating Income Before Depreciation, Amortization and Stock-Based Compensation Expense - $466 Million SUNNYVALE, Calif.--(BUSINESS WIRE)--Oct. 16, 2007--Yahoo! Inc. (Nasdaq:YHOO) today reported results for the third quarter ended September 30, 2007. "Over the past three months, we conducted a thorough review of our business and the marketplace. We've made key strategic decisions to invest in and grow our large communities of users, advertisers, and publishers. We've also made progress in sharpening our focus and improving our execution," said Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. "Moving forward, we are focused on three big, multi-year objectives: to become the starting point for the most consumers on the Internet; to be the 'must buy' for the most advertisers; and to deliver open, industry-leading platforms that attract the most developers. We are executing against our transformation and are excited about playing a leadership role in the large and growing Internet market." Third Quarter 2007 Financial Results -- Revenues were $1,768 million for the third quarter of 2007, a 12 percent increase compared to $1,580 million for the same period of 2006. -- Marketing services revenues were $1,544 million for the third quarter of 2007, a 13 percent increase compared to $1,370 million for the same period of 2006. -- Marketing services revenues from Owned and Operated sites were $922 million for the third quarter of 2007, a 24 percent increase compared to $742 million for the same period of 2006. -- Marketing services revenues from Affiliate sites were $622 million for the third quarter of 2007, a 1 percent decrease compared to $628 million for the same period of 2006. -- Fees revenues were $224 million for the third quarter of 2007, a 7 percent increase compared to $210 million for the same period of 2006. -- Revenues excluding traffic acquisition costs ("TAC") were $1,283 million for the third quarter of 2007, a 14 percent increase compared to $1,121 million for the same period of 2006. -- Gross profit for the third quarter of 2007 was $1,027 million, a 14 percent increase compared to $899 million for the same period of 2006. -- Operating income for the third quarter of 2007 was $150 million, a 26 percent decrease compared to $202 million for the same period of 2006. -- Operating income before depreciation, amortization and stock-based compensation expense for the third quarter of 2007 was $466 million, a 2 percent decrease compared to $474 million for the same period of 2006. -- Cash flow from operating activities for the third quarter of 2007 was $457 million, a 17 percent increase compared to $390 million for the same period of 2006. -- Free cash flow for the third quarter of 2007 was $310 million, an 8 percent increase compared to $288 million for the same period of 2006. -- Net income for the third quarter of 2007 was $151 million or $0.11 per diluted share compared to $159 million or $0.11 per diluted share for the same period of 2006. -- Non-GAAP net income for the third quarter of 2007 was $238 million or $0.17 per diluted share compared to non-GAAP net income of $240 million or $0.17 per diluted share for the same period of 2006. -- The provision for income taxes for the third quarter of 2007 was $79 million and yielded an effective tax rate of 41 percent. The provision for income taxes for the third quarter of 2006 was $124 million and yielded an effective tax rate of 49 percent. -- 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 Income," "Reconciliations to Unaudited Condensed Consolidated Statements of Income," and "Reconciliation of GAAP Net Income and GAAP Net Income Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share." "Our strategy is to generate and leverage the most valuable insights, deploy open platforms, and offer partner-of-choice solutions that make Yahoo! more relevant and indispensable for our users, advertisers, publishers, and developers," said Sue Decker, president, Yahoo! Inc. "During the quarter, we continued to make strides in sharpening our focus and organizing ourselves to execute against this strategy. We are prioritizing our resources around the key Yahoo! starting points that create the most value, and creating strong differentiation in those products. We are aggressively building out our open advertising and publishing network, delivering more integrated and targeted solutions, and pursuing opportunities to realize added value from both the search and display inventory created by our massive and growing user base." Segment Financial Results -- United States segment revenues for the third quarter of 2007 were $1,195 million, a 13 percent increase compared to $1,054 million for the same period of 2006. -- International segment revenues for the third quarter of 2007 were $573 million, a 9 percent increase compared to $526 million for the same period of 2006. -- United States segment operating income before depreciation, amortization and stock-based compensation expense for the third quarter of 2007 was $338 million, a 7 percent decrease compared to $366 million for the same period of 2006. -- International segment operating income before depreciation, amortization and stock-based compensation expense for the third quarter of 2007 was $128 million, an 18 percent increase compared to $108 million for the same period of 2006. Cash Flow Information Free cash flow was $310 million for the third quarter of 2007 compared to $288 million for the same period of 2006. In addition to free cash flow, Yahoo! generated $40 million from the issuance of common stock as a result of the exercise of employee stock options. This was offset by $350 million used for direct stock repurchases and $320 million used for acquisitions. Cash, cash equivalents and investments in marketable debt securities were $2,763 million at September 30, 2007 as compared to $3,152 million at June 30, 2007, a decrease of $389 million. "We are pleased with our results this quarter and are continuing to invest in major growth initiatives that advance our key strategic objectives," said Blake Jorgensen, chief financial officer, Yahoo! Inc. "We are encouraged by the early signs of improvement in our business and believe the strategy we're pursuing and the investments we're making will position us to capture the significant opportunities on the horizon and create long-term shareholder value." Quarterly Conference Call Yahoo! will host a conference call to discuss third 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/results.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 888-286-8010 or 617-801-6888, reservation number: 62045407. About Yahoo! Yahoo! Inc. is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! is focused on powering its communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. Yahoo! is headquartered in Sunnyvale, California. For more information, visit pressroom.yahoo.com or the Company's blog, Yodel Anecdotal. Owned and Operated sites refer to Yahoo!'s owned and operated online properties and services. Affiliate sites refer to Yahoo!'s distribution network of third-party entities who have integrated Yahoo!'s search and/or display advertising offerings into their websites. This press release and its attachments include the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission: revenues excluding traffic acquisition costs or TAC, operating income before depreciation, amortization and stock-based compensation expense, free cash flow, and non-GAAP net income and non-GAAP 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 ("GAAP"). See "Note to Unaudited Condensed Consolidated Statements of Income," "Reconciliations to Unaudited Condensed Consolidated Statements of Income," and "Reconciliation of GAAP Net Income and GAAP Net Income Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share" 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 (including without limitation the statements and information 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 implementation and results of the Company's ongoing strategic initiatives; the Company's ability to compete with new or existing competitors; the successful implementation, and acceptance by advertisers, of the Company's new search advertising system; 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 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 press release and its attachments is as of October 16, 2007. 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, 2006 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 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 September 30, 2007, which will be filed with the SEC in the fourth quarter of 2007. 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 Income (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ---------------------- 2006 2007 2006 2007 ----------- ----------- ---------- ----------- Revenues $1,580,322 $1,767,506 $4,723,231 $5,137,276 Cost of revenues 681,120 740,200 1,984,830 2,136,849 ---------- ---------- ---------- ---------- Gross profit 899,202 1,027,306 2,738,401 3,000,427 ---------- ---------- ---------- ---------- Operating expenses: Sales and marketing 331,025 410,936 988,030 1,168,785 Product development 202,079 274,682 628,399 795,268 General and administrative 130,984 161,511 391,198 449,934 Amortization of intangibles 32,774 29,985 97,635 82,264 ---------- ----------- ---------- ---------- Total operating expenses 696,862 877,114 2,105,262 2,496,251 ---------- ---------- ---------- ---------- Income from operations 202,340 150,192 633,139 504,176 Other income, net 50,268 43,748 121,794 109,935 ---------- ---------- ---------- ---------- Income before income taxes, earnings in equity interests and minority interests 252,608 193,940 754,933 614,111 Provision for income taxes (124,372) (78,653) (350,002) (258,743) Earnings in equity interests 30,190 36,546 78,261 97,801 Minority interests in operations of consolidated subsidiaries 103 (547) (474) 1,108 ---------- ---------- ---------- ---------- Net income $ 158,529 $ 151,286 $ 482,718 $ 454,277 ========== ========== ========== ========== Net income per share - diluted $ 0.11 $ 0.11 $ 0.33 $ 0.32 ========== ========== ========== ========== Shares used in per share calculation - diluted 1,442,429 1,395,056 1,471,832 1,403,756 ========== ========== ========== ========== Stock-based compensation expense was allocated as follows: Cost of revenues $ 1,689 $ 2,555 $ 4,956 $ 6,919 Sales and marketing 42,470 70,353 119,826 172,731 Product development 38,260 51,603 112,147 164,354 General and administrative 39,072 21,029 92,926 70,321 ---------- ---------- ---------- ---------- Total stock-based compensation expense $ 121,491 $ 145,540 $ 329,855 $ 414,325 ========== ========== ========== ========== - ---------------------------------------------------------------------- Supplemental Financial Data (See Note) - ---------------------- Revenues excluding TAC $1,121,467 $1,282,601 $3,331,820 $3,709,443 Operating income before depreciation, amortization and stock-based compensation expense $ 473,738 $ 466,309 $1,365,528 $1,399,973 Free cash flow $ 287,915 $ 309,562 $ 988,691 $1,006,505 Non-GAAP net income per share excluding stock-based compensation expense $ 0.17 $ 0.17 $ 0.49 $ 0.51 Yahoo! Inc. Note to Unaudited Condensed Consolidated Statements of Income This press release and its attachments include 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, non-GAAP net income and non- GAAP net income per share, which are reconciled to gross profit, income from operations, cash flow from operating activities, 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. We describe limitations specific to each non-GAAP financial measure below. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of the non- GAAP financial measure to the most directly comparable GAAP financial measure or measures. Further, management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, 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 GAAP. 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 affiliate sites 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 affiliate sites, 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 affiliate sites. Further, management uses revenues excluding TAC for evaluating the performance of our business, making operating decisions, 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. Management compensates for these limitations by also relying on the comparable GAAP financial measures of revenues, cost of revenues and gross profit, each of which includes the impact of TAC. 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 (including the compensation of Terry Semel who served as our chief executive officer through June 18, 2007 and whose compensation after June 1, 2006 consisted almost entirely of stock- based compensation). We consider this measure to be an important indicator of the operational strength of the Company. We exclude depreciation and amortization because while tangible and intangible assets support our businesses, we do not believe the related depreciation and amortization costs are directly attributable to the operating performance of our business. This measure is used by some investors when assessing the performance of our Company. In addition, because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation enhances the ability of management and investors to understand the impact of stock-based compensation expense on our operating income. We do not include depreciation, amortization and stock-based compensation expense in our internal measures or in the measures used by the Company to formulate our business outlook presented with our quarterly financial information to investors. A limitation associated with the non-GAAP measure of operating income before depreciation, amortization and stock-based compensation expense is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our 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 the Company's workforce. Management compensates for these limitations by also relying on the comparable GAAP financial measure of income from operations, which includes depreciation, amortization and stock-based compensation expense. Free Cash Flow is a non-GAAP measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based compensation), less net capital expenditures and dividends received. 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. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company's unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period. Non-GAAP 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. Effective January 1, 2006, we adopted Statement of Financial Accounting Standard No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). In our calculation of non-GAAP net income and non-GAAP net income per share, we have excluded stock-based compensation expense calculated in accordance with SFAS 123R and its related tax effects. We consider non-GAAP net income and non-GAAP net income per share to be profitability measures which facilitate the forecasting of our operating results for future periods and allow for the comparison of our results to historical periods. A limitation of non-GAAP net income and non-GAAP net income per share is that they do not include all items that impact our net income and net income per share for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measures of net income and net income per share, both of which include the expense and related tax effects of the item excluded from non-GAAP net income and non-GAAP net income per share. Yahoo! Inc. Reconciliations to Unaudited Condensed Consolidated Statements of Income (in thousands) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2006 2007 2006 2007 ----------- ----------- ----------- ----------- Revenues for groups of similar services : Marketing services: Owned and Operated sites $ 741,919 $ 921,908 $2,210,901 $2,631,599 Affiliate sites 628,455 621,693 1,926,572 1,866,653 ---------- ---------- ---------- ---------- Marketing services 1,370,374 1,543,601 4,137,473 4,498,252 Fees 209,948 223,905 585,758 639,024 ---------- ---------- ---------- ---------- Total revenues $1,580,322 $1,767,506 $4,723,231 $5,137,276 ========== ========== ========== ========== Revenues by segment: United States $1,054,048 $1,194,911 $3,221,220 $3,414,182 International 526,274 572,595 1,502,011 1,723,094 ---------- ---------- ---------- ---------- Total revenues $1,580,322 $1,767,506 $4,723,231 $5,137,276 ========== ========== ========== ========== Cost of revenues: Traffic acquisition costs ("TAC") $ 458,855 $ 484,905 $1,391,411 $1,427,833 Other cost of revenues 222,265 255,295 593,419 709,016 ---------- ---------- ---------- ---------- Total cost of revenues $ 681,120 $ 740,200 $1,984,830 $2,136,849 ========== ========== ========== ========== Revenues excluding TAC: Gross profit $ 899,202 $1,027,306 $2,738,401 $3,000,427 Other cost of revenues 222,265 255,295 593,419 709,016 ---------- ---------- ---------- ---------- Revenues excluding TAC $1,121,467 $1,282,601 $3,331,820 $3,709,443 ========== ========== ========== ========== Revenues excluding TAC by segment: United States: Gross profit $ 654,203 $ 752,541 $2,015,710 $2,206,891 Other cost of revenues 182,393 209,557 484,055 573,828 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 836,596 $ 962,098 $2,499,765 $2,780,719 ========== ========== ========== ========== International: Gross profit $ 244,999 $ 274,765 $ 722,691 $ 793,536 Other cost of revenues 39,872 45,738 109,364 135,188 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 284,871 $ 320,503 $ 832,055 $ 928,724 ========== ========== ========== ========== Operating income before depreciation, amortization and stock-based compensation expense: Income from operations $ 202,340 $ 150,192 $ 633,139 $ 504,176 Depreciation and amortization 149,907 170,577 402,534 481,472 Stock-based compensation expense 121,491 145,540 329,855 414,325 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock-based compensation expense $ 473,738 $ 466,309 $1,365,528 $1,399,973 ========== ========== ========== ========== Operating income before depreciation, amortization and stock-based compensation expense by segment: Operating income before depreciation, amortization and stock-based compensation expense - United States $ 365,550 $ 338,423 $1,041,417 $1,042,278 Operating income before depreciation, amortization and stock-based compensation expense - International 108,188 127,886 324,111 357,695 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock-based compensation expense $ 473,738 $ 466,309 $1,365,528 $1,399,973 ========== ========== ========== ========== United States: Income from operations $ 132,300 $ 68,639 $ 417,395 $ 278,363 Depreciation and amortization 123,163 139,753 326,801 391,399 Stock-based compensation expense 110,087 130,031 297,221 372,516 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock-based compensation expense - United States $ 365,550 $ 338,423 $1,041,417 $1,042,278 ========== ========== ========== ========== International: Income from operations $ 70,040 $ 81,553 $ 215,744 $ 225,813 Depreciation and amortization 26,744 30,824 75,733 90,073 Stock-based compensation expense 11,404 15,509 32,634 41,809 ---------- ---------- ---------- ---------- Operating income before depreciation, amortization and stock-based compensation expense - International $ 108,188 $ 127,886 $ 324,111 $ 357,695 ========== ========== ========== ========== Free cash flow: Cash flow from operating activities $ 389,654 $ 456,712 $1,204,219 $1,297,015 Acquisition of property and equipment, net (240,761) (147,150) (557,586) (409,845) Dividends received - - (12,908) (15,156) Excess tax benefits from stock-based awards 139,022 - 354,966 134,491 ---------- ---------- ---------- ---------- Free cash flow $ 287,915 $ 309,562 $ 988,691 $1,006,505 ========== ========== ========== ========== Yahoo! Inc. Reconciliation of GAAP Net Income and GAAP Net Income Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share (in thousands, except per share amounts) Three Months Ended September 30, ----------------------- 2006 2007 ----------- ----------- GAAP Net income $ 158,529 $ 151,286 ========== ========== (a) Stock-based compensation as measured using the fair value method under SFAS 123R 121,491 145,540 (b) Reversal of an earn-out accrual (10,000) - (c) Non-cash gain arising from increased dilution of our ownership in Alibaba, resulting in the recognition of a further gain on the sale of Yahoo! China (14,316) - (d) To reduce the provision for income taxes to eliminate a charge related to a subsidiary restructuring transaction reported in the three months ended December 31, 2005. 10,616 - (e) To adjust the provision for income taxes to reflect an effective tax rate of 40% in both the three month periods ended September 30, 2006 and 2007, and to reflect the tax impact of items (a) through (d) in both periods. (26,157) (58,496) ---------- ---------- Non-GAAP Net income excluding stock-based compensation expense and other items $ 240,163 $ 238,330 ========== ========== GAAP Net income per share - diluted $ 0.11 $ 0.11 ========== ========== Non-GAAP Net income excluding stock-based compensation expense and other items per share - diluted $ 0.17 $ 0.17 ========== ========== Shares used in per share calculations - diluted 1,442,429 1,395,056 ========== ========== Nine Months Ended September 30, ----------------------- 2006 2007 ----------- ----------- GAAP Net income $ 482,718 $ 454,277 ========== ========== (a) Stock-based compensation as measured using the fair value method under SFAS 123R 329,855 414,325 (b) Reversal of an earn-out accrual (10,000) - (c) Non-cash gain arising from increased dilution of our ownership in Alibaba, resulting in the recognition of a further gain on the sale of Yahoo! China (14,316) - (d) To reduce the provision for income taxes to eliminate a charge related to a subsidiary restructuring transaction reported in the three months ended December 31, 2005. 10,616 - (e) To adjust the provision for income taxes to reflect an effective tax rate of 40% in both the nine months ended September 30, 2006 and 2007, and to reflect the tax impact of items (a) through (d) in both periods. (84,803) (156,744) ---------- ---------- Non-GAAP Net income excluding stock-based compensation expense and other items $ 714,070 $ 711,858 ========== ========== GAAP Net income per share - diluted $ 0.33 $ 0.32 ========== ========== Non-GAAP Net income excluding stock-based compensation expense and other items per share - diluted $ 0.49 $ 0.51 ========== ========== Shares used in per share calculations - diluted 1,471,832 1,403,756 ========== ========== Yahoo! Inc. Business Outlook The following business outlook is based on current information and expectations as of October 16, 2007. 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 business outlook prior to the release of the Company's next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may update the business outlook or any portion thereof at any time at its discretion. Three Months Year Ending Ending December 31, December 31, 2007 2007 --------------- --------------- Revenues excluding TAC(1) outlook (in millions): Gross profit $1,055 - $1,165 $4,056 - $4,166 Other cost of revenues 255 - 285 964 - 994 --------------- --------------- Revenues excluding TAC $1,310 - $1,450 $5,020 - $5,160 =============== =============== Operating income before depreciation, amortization and stock-based compensation expense(1) outlook (in millions): Income from operations $155 - $175 $658 - $678 Depreciation and Amortization 160 - 180 642 - 662 Stock-based compensation expense 165 - 195 580 - 610 --------------- --------------- Operating income before depreciation, amortization and stock-based compensation expense $480 - $550 $1,880 - $1,950 =============== =============== (1) Refer to Note to Unaudited Condensed Consolidated Statements of Income. Yahoo! Inc. Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 2006 2007 2006 2007 ------------ ----------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 158,529 $ 151,286 $ 482,718 $ 454,277 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 78,529 102,422 217,730 299,933 Amortization of intangible assets 71,378 68,155 184,804 181,539 Stock-based compensation expense 121,491 145,540 329,855 414,325 Tax benefits from stock- based awards 142,729 6,028 370,549 170,683 Excess tax benefits from stock-based awards (139,022) - (354,966) (134,491) Deferred income taxes (31,917) (43,746) (95,456) (134,585) Earnings in equity interests (30,190) (36,546) (78,261) (97,801) Dividends received - - 12,908 15,156 Minority interests in operations of consolidated subsidiaries (103) 547 474 (1,108) Gains from sale of investments, assets and other, net (13,741) (14,318) (15,811) (12,796) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net 6,575 (49,746) (46,780) (6,381) Prepaid expenses and other (12,289) 73,578 (28,252) 61,059 Accounts payable 3,232 (19,005) 66,985 12,073 Accrued expenses and other liabilities 50,191 66,648 138,787 50,809 Deferred revenue (15,738) 5,869 18,935 24,323 ----------- ---------- ----------- ----------- Net cash provided by operating activities 389,654 456,712 1,204,219 1,297,015 ----------- ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net (240,761) (147,150) (557,586) (409,845) Purchases of marketable debt securities (240,690) (112,004) (889,023) (1,105,043) Proceeds from sales and maturities of marketable debt securities 585,532 510,687 1,431,206 1,855,439 Acquisitions, net of cash acquired (5,971) (319,503) (61,300) (355,514) Other investing activities, net 19,120 (85,830) 18,476 (105,744) ----------- ---------- ----------- ----------- Net cash provided by (used in) investing activities 117,230 (153,800) (58,227) (120,707) ----------- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 41,626 40,164 231,451 243,889 Repurchases of common stock (1,091,931) (350,055) (1,782,140) (1,365,184) Structured stock repurchases, net - - (227,705) (250,000) Excess tax benefits from stock-based awards 139,022 - 354,966 134,491 Other financing activities, net - (12,167) - (13,927) ----------- ---------- ----------- ----------- Net cash used in financing activities (911,283) (322,058) (1,423,428) (1,250,731) ----------- ---------- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (1,565) 21,284 33,002 32,502 Net change in cash and cash equivalents (405,964) 2,138 (244,434) (41,921) Cash and cash equivalents, beginning of period 1,591,223 1,525,812 1,429,693 1,569,871 ----------- ---------- ----------- ----------- Cash and cash equivalents, end of period $ 1,185,259 $1,527,950 $ 1,185,259 $ 1,527,950 =========== ========== =========== =========== Supplemental schedule of acquisition- related activities: Cash paid for acquisitions $ 5,971 $ 338,910 $ 68,977 $ 380,677 Cash acquired in acquisitions - (19,407) (7,677) (25,163) ----------- ----------- ----------- ----------- $ 5,971 $ 319,503 $ 61,300 $ 355,514 =========== ========== =========== =========== Common stock, restricted stock and stock options issued in connection with acquisitions $ - $ 413,901 $ - $ 468,429 =========== ========== =========== =========== Yahoo! Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands) December 31, September 30, 2006 2007 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 1,569,871 $ 1,527,950 Short-term marketable debt securities 1,031,528 684,197 Accounts receivable, net 930,964 950,027 Prepaid expenses and other current assets 217,779 321,574 ----------- ------------ Total current assets 3,750,142 3,483,748 Long-term marketable debt securities 935,886 550,630 Property and equipment, net 1,101,379 1,240,340 Goodwill 2,968,557 3,532,296 Intangible assets, net 405,822 517,356 Other long-term assets 459,988 529,467 Investments in equity interests 1,891,834 1,989,311 ----------- ------------ Total assets $ 11,513,608 $ 11,843,148 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 109,130 $ 131,559 Accrued expenses and other current liabilities 1,046,882 965,860 Deferred revenue 317,982 336,796 Short-term debt - 749,628 ----------- ------------ Total current liabilities 1,473,994 2,183,843 Long-term deferred revenue 64,939 59,015 Long-term debt 749,915 - Other long-term liabilities 36,890 27,750 Deferred and other tax liabilities, net 19,204 281,528 Minority interests in consolidated subsidiaries 8,056 8,295 Stockholders' equity 9,160,610 9,282,717 ----------- ------------ Total liabilities and stockholders' equity $ 11,513,608 $ 11,843,148 =========== ============ CONTACT: Yahoo! Inc. Kelly Delaney, 408-349-2579 (Media Relations) kelleyd@yahoo-inc.com Cathy La Rocca, 408-349-5188 (Investor Relations) cathy@yahoo-inc.com -----END PRIVACY-ENHANCED MESSAGE-----