Exhibit 99.1
Yahoo! Reports Third Quarter 2006 Financial Results
Revenues - $1,580 Million,
Operating Income - $202 Million,
Operating Income before Depreciation, Amortization and Stock-Based
Compensation Expense - $474 Million
SUNNYVALE, Calif.--(BUSINESS WIRE)--Oct. 17, 2006--Yahoo! Inc.
(Nasdaq:YHOO) today reported results for the third quarter ended
September 30, 2006.
"While we are tremendously excited about many things happening at
Yahoo!, we are not satisfied with our third quarter financial
performance. We continued to grow and believe that we outperformed the
graphical market but not at a rate that met our expectations," said
Terry Semel, chairman and CEO of Yahoo! "Looking forward, we are
excited about the roll-out of our new Project Panama advertising
platform. In addition, we plan to invest, innovate and secure leading
positions in the areas where we see the biggest growth opportunities.
We know we have work to do, but we are confident that Yahoo! has the
talent and resources to strengthen our leading position on the
Internet, capitalize on the huge growth opportunities ahead, and
deliver significant returns for shareholders."
Third Quarter 2006 Financial Results
-- Revenues were $1,580 million for the third quarter of 2006, a
19 percent increase compared to $1,330 million for the same
period of 2005.
-- Marketing services revenue was $1,370 million for the third
quarter of 2006, an 18 percent increase compared to $1,160
million for the same period of 2005.
-- Fees revenue was $210 million for the third quarter of 2006, a
23 percent increase compared to $170 million for the same
period of 2005.
-- Revenues excluding traffic acquisition costs ("TAC") were
$1,121 million for the third quarter of 2006, a 20 percent
increase compared to $932 million for the same period of 2005.
-- Gross profit for the third quarter of 2006 was $899 million, a
13 percent increase compared to $796 million for the same
period of 2005.
-- Operating income for the third quarter of 2006 was $202
million (including $121 million for stock-based compensation
expense recorded under the fair value method), a 25 percent
decrease compared to $270 million (including $14 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 third quarter of 2006
was $474 million, a 23 percent increase compared to $385
million for the same period of 2005.
-- Cash flow from operating activities for the third quarter of
2006 was $390 million, an 11 percent decrease compared to $440
million for the same period of 2005.
-- Free cash flow for the third quarter of 2006 was $288 million
(including $101 million for a previously announced land
purchase), a 16 percent decrease compared to $345 million for
the same period of 2005.
-- Net income for the third quarter of 2006 was $159 million or
$0.11 per diluted share (including $80 million of stock-based
compensation expense, net of tax, recorded under the fair
value method), compared to $254 million or $0.17 per diluted
share for the same period of 2005 (including $8 million of
stock-based compensation expense, net of tax, recorded under
the intrinsic value method) for the third quarter of 2005.
-- Adjusted net income for the third quarter of 2006 was $155
million or $0.11 per diluted share (including $80 million of
stock-based compensation expense, net of tax, recorded under
the fair value method and excluding certain investment and
other gains and charges of $3 million, net of tax), compared
to adjusted net income of $165 million or $0.11 per diluted
share (including $59 million of stock compensation expense,
net of tax, recorded under the fair value method, excluding $8
million of stock compensation expense, net of tax, recorded
under the intrinsic value method and excluding certain gains
on the sale of certain investments of $38 million, net of tax
adjustments) for the third quarter of 2005.
-- Adjusted net income for the third quarter of 2006 was $235
million or $0.16 per diluted share (excluding $80 million of
stock-based compensation expense, net of tax, and excluding
certain investment and other gains and charges of $3 million,
net of tax), compared to adjusted net income of $224 million
or $0.15 per diluted share (excluding $8 million of
stock-based compensation expense, net of tax, and excluding
certain gains on the sale of certain investments of $38
million, net of tax adjustments) for the third quarter 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", "Reconciliations to Unaudited
Condensed Consolidated Statements of Operations" and
"Reconciliation of GAAP Net Income and Net Income Per Share to
Non-GAAP Adjusted Net Income and Adjusted Net Income Per
Share".
"Although we faced unanticipated challenges in the third quarter,
we continued to generate strong year-over-year increases in both
revenue and free cash flow, on top of an already very large base,"
said Susan Decker, chief financial officer, Yahoo! "Our profitability
and cash generation remain strong, and we will continue to be
disciplined by investing in assets we believe will enhance user
experience and generate strong returns for our employees, partners and
shareholders."
Segment Financial Results
-- United States revenues for the third quarter of 2006 were
$1,054 million, a 14 percent increase compared to $923 million
for the same period of 2005.
-- International revenues for the third quarter of 2006 were $526
million, a 29 percent increase compared to $407 million for
the same period of 2005.
-- United States segment operating income before depreciation,
amortization and stock-based compensation expense for the
third quarter of 2006 was $366 million, a 19 percent increase
compared to $306 million for the same period of 2005.
-- International segment operating income before depreciation,
amortization and stock-based compensation expense for the
third quarter of 2006 was $108 million, a 37 percent increase
compared to $79 million for the same period of 2005.
Cash Flow Information
Free cash flow was $288 million (including $101 million for a
previously announced land purchase) in the third quarter of 2006
compared to $345 million for the same period of 2005. In addition,
Yahoo! used $1,092 million for direct stock repurchases and generated
$42 million from the issuance of common stock as a result of the
exercise of employee stock options. Cash, cash equivalents and
investments in marketable debt securities were $3,230 million at
September 30, 2006 as compared to $3,965 million at June 30, 2006, a
decrease of $735 million.
Please refer to the "Note to Unaudited Condensed Consolidated
Statements of Operations" for definitions of certain key non-GAAP
financial measures used here and in the "Business Outlook" attached to
this press release.
Stock Repurchase Program
Yahoo! today announced that its Board of Directors has approved a
stock repurchase program, effective October 12, 2006. Under the
program, Yahoo! is authorized to repurchase up to $3 billion of its
outstanding shares of common stock from time to time over the next
five years, depending on market conditions, share price and other
factors. The repurchase may be made on the open market, in block
trades or otherwise and may include derivative transactions.
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/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: 15931668.
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 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
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", "Reconciliations to
Unaudited Condensed Consolidated Statements of Operations" and
"Reconciliation of GAAP Net Income and Net Income Per Share to
Non-GAAP Adjusted Net Income and Adjusted 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 successful
implementation, and acceptance by advertisers, of the Company's new
search advertising platform, 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 October 17, 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 June
30, 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 September 30, 2006, which will be filed with the SEC in
the fourth 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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2005 2006 2005 2006
---------------------- ---------------------
Revenues $1,329,929 $1,580,322 $3,756,668 $4,723,231
Cost of revenues(1) 534,381 681,120 1,501,463 1,984,830
---------- ---------- ---------- ----------
Gross profit 795,548 899,202 2,255,205 2,738,401
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing(2) 267,992 331,025 747,916 988,030
Product development(2) 148,433 202,079 400,329 628,399
General and
administrative(2) 82,162 130,984 247,549 391,198
Amortization of
intangibles(1) 26,904 32,774 80,634 97,635
--------------------- ---------- ----------
Total operating
expenses 525,491 696,862 1,476,428 2,105,262
---------- ---------- ---------- ----------
Income from operations 270,057 202,340 778,777 633,139
Other income, net 65,995 50,268 1,095,725 121,794
---------- ---------- ---------- ----------
Income before income
taxes, earnings in equity
interests and minority
interests 336,052 252,608 1,874,502 754,933
Provision for income taxes (113,797) (124,372) (750,087) (350,002)
Earnings in equity
interests 32,164 30,190 94,647 78,261
Minority interests in
operations of
consolidated subsidiaries (646) 103 (6,040) (474)
---------- ---------- ---------- ----------
Net income $ 253,773 $ 158,529 $1,213,022 $ 482,718
========== ========== ========== ==========
Net income per share -
diluted $ 0.17 $ 0.11 $ 0.82 $ 0.33
========== ========== ========== ==========
Shares used in per share
calculation - diluted 1,486,876 1,442,429 1,482,739 1,471,832
========== ========== ========== ==========
(2) Stock-based
compensation expense was
allocated as follows:
Cost of revenues $ - $ 1,689 $ - $ 4,956
Sales and marketing 2,278 42,470 5,277 119,826
Product development 6,817 38,260 13,820 112,147
General and
administrative 4,429 39,072 14,841 92,926
---------- ---------- ---------- ----------
Total stock-based
compensation expense $ 13,524 $ 121,491 $ 33,938 $ 329,855
========== ========== ========== ==========
- ----------------------------------------------------------------------
Supplemental Financial
Data (See Note)
- --------------------------
Revenues excluding TAC $ 932,115 $1,121,467 $2,627,982 $3,331,820
Operating income before
depreciation,
amortization and stock-
based compensation
expense $ 385,122 $ 473,738 $1,098,624 $1,365,528
Free cash flow $ 344,637 $ 287,915 $ 962,077 $ 988,691
Adjusted net income per
diluted share excluding
stock-based compensation
expense and other items $ 0.15 $ 0.16 $ 0.42 $ 0.48
Adjusted net income per
diluted share including
fair value stock-based
compensation expense and
excluding other items $ 0.11 $ 0.11 $ 0.31 $ 0.33
- ----------------------------------------------------------------------
(1) Yahoo! has changed its classification of amortization expense
related to developed technology and patents acquired through
acquisitions. Amortization expense of $14 million and $42 million
for the three and nine months ended September 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 non-GAAP adjusted net income and adjusted net
income per diluted share financial measures which include stock-
based compensation expense calculated under the fair value method
and exclude other items, for all periods presented. Yahoo! is
also presenting non-GAAP adjusted net income and adjusted net
income per diluted share financial measures which exclude stock-
based compensation expense and other items for all periods
presented.
Yahoo! Inc.
Note to Unaudited Condensed Consolidated Statements of Operations
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 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, 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 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 non-cash
depreciation and amortization costs are directly attributable to the
underlying operating performance of our business and therefore should
not be included in our periodic operating cash earnings presented as
a non-GAAP measure. 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
compare our core operating results over multiple periods with those
of other companies. 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 this non-GAAP measure, 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.
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 nine months ended September 30, 2006. Prior to January 1,
2006, including the three and nine months ended September 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 calculation of
adjusted net income and adjusted net income per share, we have
excluded stock-based compensation expense in addition to certain
gains, losses and expenses and their related tax effects. In the
alternative calculation of adjusted net income and adjusted net
income per share, we have included stock-based compensation expense
calculated under the fair value method (as previously disclosed) for
the three and nine months ended September 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 and adjusted 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 and to other companies in our
industry. A limitation of adjusted net income and adjusted 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.
Yahoo! Inc.
Reconciliations to Unaudited Condensed Consolidated Statements of
Operations
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2005 2006 2005 2006
----------- ----------- ----------- -----------
Revenues for groups of similar services:
Marketing services $1,159,572 $1,370,374 $3,278,669 $4,137,473
Fees 170,357 209,948 477,999 585,758
---------- ---------- ---------- ----------
Total revenues $1,329,929 $1,580,322 $3,756,668 $4,723,231
========== ========== ========== ==========
Revenues by segment:
United States $ 922,860 $1,054,048 $2,611,103 $3,221,220
International 407,069 526,274 1,145,565 1,502,011
---------- ---------- ---------- ----------
Total revenues $1,329,929 $1,580,322 $3,756,668 $4,723,231
========== ========== ========== ==========
Cost of revenues:
Traffic acquisition
costs ("TAC") $ 397,814 $ 458,855 $1,128,686 $1,391,411
Other cost of
revenues 136,567 222,265 372,777 593,419
---------- ---------- ---------- ----------
Total cost of
revenues $ 534,381 $ 681,120 $1,501,463 $1,984,830
========== ========== ========== ==========
Revenues excluding TAC:
Gross profit $ 795,548 $ 899,202 $2,255,205 $2,738,401
Other cost of
revenues 136,567 222,265 372,777 593,419
---------- ---------- ---------- ----------
Revenues excluding
TAC $ 932,115 $1,121,467 $2,627,982 $3,331,820
========== ========== ========== ==========
Revenues excluding TAC by segment:
United States:
Gross profit $ 596,957 $ 654,203 $1,687,566 $2,015,710
Other cost of
revenues 106,660 182,393 294,988 484,055
---------- ---------- ---------- ----------
Revenues excluding
TAC $ 703,617 $ 836,596 $1,982,554 $2,499,765
========== ========== ========== ==========
International:
Gross profit $ 198,591 $ 244,999 $ 567,639 $ 722,691
Other cost of
revenues 29,907 39,872 77,789 109,364
---------- ---------- ---------- ----------
Revenues excluding
TAC $ 228,498 $ 284,871 $ 645,428 $ 832,055
========== ========== ========== ==========
Operating income before depreciation, amortization and stock-based
compensation expense:
Income from
operations $ 270,057 $ 202,340 $ 778,777 $ 633,139
Depreciation and
amortization 101,541 149,907 285,909 402,534
Stock-based
compensation
expense 13,524 121,491 33,938 329,855
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense $ 385,122 $ 473,738 $1,098,624 $1,365,528
========== ========== ========== ==========
Operating income before depreciation, amortization and stock-based
compensation expense by segment:
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense - United
States $ 306,031 $ 365,550 $ 867,690 $1,041,417
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense -
International 79,091 108,188 230,934 324,111
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense $ 385,122 $ 473,738 $1,098,624 $1,365,528
========== ========== ========== ==========
United States:
Income from
operations $ 209,735 $ 132,300 $ 602,028 $ 417,395
Depreciation and
amortization 83,413 123,163 233,607 326,801
Stock-based
compensation
expense 12,883 110,087 32,055 297,221
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense - United
States $ 306,031 $ 365,550 $ 867,690 $1,041,417
========== ========== ========== ==========
International:
Income from
operations $ 60,322 $ 70,040 $ 176,749 $ 215,744
Depreciation and
amortization 18,128 26,744 52,302 75,733
Stock-based
compensation
expense 641 11,404 1,883 32,634
---------- ---------- ---------- ----------
Operating income
before
depreciation,
amortization and
stock-based
compensation
expense -
International $ 79,091 $ 108,188 $ 230,934 $ 324,111
========== ========== ========== ==========
Free cash flow:
Cash flow from
operating
activities $ 440,131 $ 389,654 $1,230,041 $1,204,219
Acquisition of
property and
equipment, net (95,494) (240,761) (257,294) (557,586)
Dividends received - - (10,670) (12,908)
Excess tax benefits
from stock-based
compensation - 139,022 - 354,966
---------- ---------- ---------- ----------
Free cash flow $ 344,637 $ 287,915 $ 962,077 $ 988,691
========== ========== ========== ==========
Yahoo! Inc.
Reconciliation of GAAP Net Income and Net Income Per Share to Non-GAAP
Adjusted Net Income and Adjusted Net Income Per Share
(in thousands, except per share amounts)
Adjusted Net Income and Adjusted Net Income Per Share Excluding Stock-
based Compensation Expense and Other Items
Three Months Ended
September 30, 2005
-----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
-----------------------------------------
Revenues $ 1,329,929 $ - $1,329,929
Cost of revenues 534,381 - 534,381
----------- ----------- ----------
Gross profit 795,548 - 795,548
----------- ----------- ----------
Operating expenses:
Sales and marketing 267,992 (2,278) (a) 265,714
Product development 148,433 (6,817) (a) 141,616
General and administrative 82,162 (4,429) (a) 77,733
Amortization of intangibles 26,904 - 26,904
----------- ----------- ----------
Total operating expenses 525,491 (13,524) 511,967
----------- ----------- ----------
Income from operations 270,057 13,524 283,581
Other income, net 65,995 (26,863) (b) 39,132
----------- ----------- ----------
Income before income taxes,
earnings in equity
interests
and minority interests 336,052 (13,339) 322,713
Provision for income taxes (113,797) (16,366)(c)(d) (130,163)
Earnings in equity
interests 32,164 - 32,164
Minority interests in
operations of consolidated
subsidiaries (646) - (646)
----------- ----------- ----------
Net income $ 253,773 $ (29,705) $ 224,068
=========== =========== ==========
Net income per share -
diluted $ 0.17 $ 0.15
=========== ==========
Shares used in per share
calculation - diluted 1,486,876 1,486,876
=========== ==========
Three Months Ended
September 30, 2006
----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
----------------------------------------
Revenues $ 1,580,322 $ - $1,580,322
Cost of revenues 681,120 (1,689) (e) 679,431
----------- ----------- ----------
Gross profit 899,202 1,689 900,891
----------- ----------- ----------
Operating expenses:
Sales and marketing 331,025 (42,470) (e) 288,555
Product development 202,079 (38,260) (e) 163,819
General and administrative 130,984 (29,072) (e)(f) 101,912
Amortization of intangibles 32,774 - 32,774
----------- ----------- ----------
Total operating expenses 696,862 (109,802) 587,060
----------- ----------- ----------
Income from operations 202,340 111,491 313,831
Other income, net 50,268 (14,316) (g) 35,952
----------- ----------- ----------
Income before income taxes,
earnings in equity
interests
and minority interests 252,608 97,175 349,783
Provision for income taxes (124,372) (20,264) (h)(i) (144,636)
Earnings in equity
interests 30,190 - 30,190
Minority interests in
operations of consolidated
subsidiaries 103 - 103
----------- ----------- ----------
Net income $ 158,529 $ 76,911 $ 235,440
=========== =========== ==========
Net income per share -
diluted $ 0.11 $ 0.16
=========== ==========
Shares used in per share
calculation - diluted 1,442,429 1,442,429
=========== ==========
Nine Months Ended
September 30, 2005
-----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
-----------------------------------------
Revenues $ 3,756,668 $ - $3,756,668
Cost of revenues 1,501,463 - 1,501,463
----------- -----------
Gross profit 2,255,205 - 2,255,205
----------- ----------- ----------
Operating expenses:
Sales and marketing 747,916 (5,277) (a) 742,639
Product development 400,329 (13,820) (a) 386,509
General and administrative 247,549 (14,841) (a) 232,708
Amortization of intangibles 80,634 - 80,634
----------- ----------- ----------
Total operating expenses 1,476,428 (33,938) 1,442,490
----------- ----------- ----------
Income from operations 778,777 33,938 812,715
Other income, net 1,095,725 (1,001,790) (b) 93,935
----------- ----------- ----------
Income before income taxes,
earnings in equity
interests
and minority interests 1,874,502 (967,852) 906,650
Provision for income taxes (750,087) 382,947 (c)(d) (367,140)
Earnings in equity
interests 94,647 - 94,647
Minority interests in
operations of consolidated
subsidiaries (6,040) - (6,040)
----------- ----------- ----------
Net income $ 1,213,022 $ (584,905) $ 628,117
=========== =========== ==========
Net income per share -
diluted $ 0.82 $ 0.42
=========== ==========
Shares used in per share
calculation - diluted 1,482,739 1,482,739
=========== ==========
Nine Months Ended
September 30, 2006
----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
----------------------------------------
Revenues $ 4,723,231 $ - $4,723,231
Cost of revenues 1,984,830 (4,956) (e) 1,979,874
----------- ----------- ----------
Gross profit 2,738,401 4,956 2,743,357
----------- ----------- ----------
Operating expenses:
Sales and marketing 988,030 (119,826) (e) 868,204
Product development 628,399 (112,147) (e) 516,252
General and administrative 391,198 (82,926) (e)(f) 308,272
Amortization of intangibles 97,635 - 97,635
----------- ----------- ----------
Total operating expenses 2,105,262 (314,899) 1,790,363
----------- ----------- ----------
Income from operations 633,139 319,855 952,994
Other income, net 121,794 (14,316) (g) 107,478
----------- ----------- ----------
Income before income taxes,
earnings in equity
interests
and minority interests 754,933 305,539 1,060,472
Provision for income taxes (350,002) (84,337) (h)(i) (434,339)
Earnings in equity
interests 78,261 - 78,261
Minority interests in
operations of consolidated
subsidiaries (474) - (474)
----------- ----------- ----------
Net income $ 482,718 $ 221,202 $ 703,920
=========== =========== ==========
Net income per share -
diluted $ 0.33 $ 0.48
=========== ==========
Shares used in per share
calculation - diluted 1,471,832 1,471,832
=========== ==========
Yahoo! Inc.
Reconciliation of GAAP Net Income and Net Income Per Share to Non-GAAP
Adjusted Net Income and Adjusted Net Income Per Share
(in thousands, except per share amounts)
Adjusted Net Income and Adjusted Net Income Per Share Including Stock-
based Compensation Expense Under the Fair Value Method and Excluding
Other Items
Three Months Ended
September 30, 2005
-----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
-----------------------------------------
Net income $ 253,773 $(88,275)(j)(k)(l)$ 165,498
=========== ======== ==========
Net income per share -
diluted $ 0.17 $ 0.11
=========== ==========
Shares used in per share
calculation - diluted 1,486,876 2,032 (m) 1,488,908
=========== ======== ==========
Three Months Ended
September 30, 2006
----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
----------------------------------------
Net income $ 158,529 $ (3,246)(i)(n) $ 155,283
=========== ========== ==========
Net income per share -
diluted $ 0.11 $ 0.11
=========== ==========
Shares used in per share
calculation - diluted 1,442,429 1,442,429
=========== ==========
Nine Months Ended
September 30, 2005
-----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
-----------------------------------------
Net income $1,213,022 $(757,668)(j)(k)(l)$ 455,354
========== ========= ==========
Net income per share -
diluted $ 0.82 $ 0.31
========== ==========
Shares used in per share
calculation - diluted 1,482,739 1,704 (m) 1,484,443
========== ========= ==========
Nine Months Ended
September 30, 2006
----------------------------------------
GAAP Non-GAAP Non-GAAP
adjustments
----------------------------------------
Net income $ 482,718 $ (3,246)(i)(n) $ 479,472
=========== ========== ==========
Net income per share -
diluted $ 0.33 $ 0.33
=========== ==========
Shares used in per share
calculation - diluted 1,471,832 1,471,832
=========== ==========
Notes:
(a) To eliminate total stock-based compensation expense of $14 million
and $34 million, respectively, as measured using the intrinsic
value method under APB 25 for the three and nine months ended
September 30, 2005.
(b) To eliminate gains of $27 million and $1,002 million,
respectively, on the sale of certain investments and settlements
for the three and nine months ended September 30, 2005.
(c) To eliminate income tax effects associated with adjustments
referenced in (a) and (b).
(d) To adjust the provision for income taxes for the three and nine
months ended September 30, 2005 to reflect an effective tax rate
of approximately 40 percent.
(e) To eliminate total stock-based compensation expense of $121
million and $330 million, respectively, as measured using the
fair value method under SFAS 123R for the three and nine months
ended September 30, 2006.
(f) To eliminate a $10 million credit from the reversal of an earn-out
accrual.
(g) To eliminate a non-cash gain of $14 million arising from increased
dilution of our ownership in Alibaba, resulting in the
recognition of a further gain on the sale of Yahoo! China.
(h) To eliminate income tax effects associated with adjustments
referenced in (e), (f), and (g).
(i) To reduce the provision for income taxes to eliminate a charge of
$11 million related to a subsidiary restructuring transaction
reported in the three months ended December 31, 2005.
(j) To eliminate gains referenced in (b), net of tax.
(k) To include fair value stock-based compensation expense of $59
million and $173 million, net of tax, respectively, using the
fair value method under Statement of Financial Accounting
Standards No.123 "Accounting for Stock-Based Compensation,"
("SFAS123"), as previously disclosed and exclude recorded stock-
based compensation expense of $8 million and $20 million, net of
tax, respectively, using the intrinsic value method under APB 25
for the three and nine months ended September 30, 2005.
(l) To adjust the provision for income taxes for the three and nine
months ended September 30, 2005 to reflect an effective tax rate
of approximately 42 percent on net income including fair value
stock-based compensation expense referenced in (k).
(m) To adjust the number of shares used in the diluted net income per
share count for the impact of applying SFAS 123.
(n) To eliminate items referenced in (f) and (g), net of tax.
Yahoo! Inc.
Business Outlook
Business Outlook
The following business outlook is based on current information and
expectations as of October 17, 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 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,
2006 2006
---------------- ----------------
Revenues excluding TAC (3) outlook (in millions):
Gross profit $957 - $1,037 $3,697 - $3,777
Other cost of revenues 188 - 228 780 - 820
---------------- ----------------
Revenues excluding TAC $1,145 - $1,265 $4,477 - $4,597
================ ================
Operating income before depreciation, amortization and stock-based
compensation expense(3) outlook (in millions):
Income from operations $233 - $273 $866 - $906
Depreciation and amortization 134 -150 537 -553
Stock-based compensation expense 108 - 122 438 - 452
---------------- ----------------
Operating income before
depreciation, amortization and
stock-based compensation expense $475 - $545 $1,841 - $1,911
================ ================
(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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2006 2005 2006
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 253,773 $ 158,529 $ 1,213,022 $ 482,718
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation 60,494 78,529 163,245 217,730
Amortization of
intangible
assets 41,047 71,378 122,664 184,804
Stock-based
compensation
expense 13,524 121,491 33,938 329,855
Tax benefits
from stock-
based
compensation 121,180 110,812 723,748 275,093
Excess tax
benefits from
stock-based
compensation - (139,022) - (354,966)
Earnings in
equity
interests (32,164) (30,190) (94,647) (78,261)
Dividends
received - - 10,670 12,908
Minority
interests in
operations of
consolidated
subsidiaries 646 (103) 6,040 474
(Gain)/loss
from sale of
investments,
assets and
other, net (24,472) (13,741) (976,738) (15,811)
Changes in
assets and
liabilities,
net of effects
of
acquisitions:
Accounts
receivable,
net (50,764) 6,575 (128,921) (46,780)
Prepaid
expenses and
other (2,504) (12,289) 7,736 (28,252)
Accounts
payable 8,839 3,232 (5,354) 66,985
Accrued
expenses and
other
liabilities 31,580 50,191 111,396 138,787
Deferred
revenue 18,952 (15,738) 43,242 18,935
----------- ----------- ----------- -----------
Net cash provided
by operating
activities 440,131 389,654 1,230,041 1,204,219
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of
property and
equipment, net (95,494) (240,761) (257,294) (557,586)
Purchases of
marketable debt
securities (1,157,592) (240,690) (6,632,419) (889,023)
Proceeds from
sales and
maturities of
marketable debt
securities 1,415,056 585,532 6,789,521 1,431,206
Acquisitions, net
of cash acquired (1,089) (5,971) (127,463) (61,300)
Proceeds from
sales of
marketable
equity
securities 35,846 - 1,006,142 -
Other investing
activities, net (435) 19,120 (39,030) 18,476
----------- ----------- ----------- -----------
Net cash provided
by (used in)
investing
activities 196,292 117,230 739,457 (58,227)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from
issuance of
common stock,
net 75,027 41,626 377,751 231,451
Repurchases of
common stock (208,457) (1,091,931) (373,352) (1,782,140)
Structured stock
repurchases, net (392,786) - (752,717) (227,705)
Excess tax
benefits from
stock-based
compensation - 139,022 - 354,966
Other financing
activities, net 949 - 1,749 -
----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities (525,267) (911,283) (746,569) (1,423,428)
----------- ----------- ----------- -----------
Effect of exchange
rate changes on
cash and cash
equivalents (4,576) (1,565) (19,649) 33,002
Net change in cash
and cash
equivalents 106,580 (405,964) 1,203,280 (244,434)
Cash and cash
equivalents,
beginning of
period 1,920,423 1,591,223 823,723 1,429,693
----------- ----------- ----------- -----------
Cash and cash
equivalents, end
of period $ 2,027,003 $ 1,185,259 $ 2,027,003 $ 1,185,259
=========== =========== =========== ===========
Supplemental
schedule of
acquisition-
related
activities:
Cash paid for
acquisitions $ 1,140 $ 5,971 $ 128,592 $ 68,977
Cash acquired in
acquisitions (51) - (1,129) (7,677)
----------- ----------- ----------- -----------
$ 1,089 $ 5,971 $ 127,463 $ 61,300
=========== =========== =========== ===========
Common stock,
restricted stock
and stock
options issued
in connection
with
acquisitions $ - $ - $ 44,381 $ -
=========== =========== =========== ===========
Yahoo! Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
December 31, September 30,
2005 2006
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,429,693 $ 1,185,259
Marketable debt securities 1,131,141 923,792
Accounts receivable, net 721,723 784,460
Prepaid expenses and other current assets 166,976 166,111
------------ ------------
Total current assets 3,449,533 3,059,622
Long-term marketable debt securities 1,439,014 1,120,930
Property and equipment, net 697,522 1,048,574
Goodwill 2,895,557 2,976,576
Intangible assets, net 534,615 407,368
Other assets 57,192 140,437
Investments in equity interests 1,758,401 1,863,560
------------ ------------
Total assets $ 10,831,834 $ 10,617,067
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,291 $ 142,479
Accrued expenses and other current
liabilities 827,589 987,280
Deferred revenue 306,172 329,385
------------ ------------
Total current liabilities 1,204,052 1,459,144
Long-term deferred revenue 67,792 67,168
Long-term debt 749,995 749,960
Other long-term liabilities 243,580 265,738
Minority interests in consolidated
subsidiaries - 7,818
Stockholders' equity 8,566,415 8,067,239
------------ ------------
Total liabilities and stockholders' equity $ 10,831,834 $ 10,617,067
============ ============
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