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 DATE OF REPORT: July 7, 2004 ----------- YAHOO! INC.. (Exact name of registrant as specified in its charter) 0-28018 (Commission File Number) DELAWARE 77-0398689 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 701 FIRST AVE. SUNNYVALE, CALIFORNIA 94089 (Address of principal executive offices, with zip code) (408) 349-3300 (Registrant's telephone number, including area code)Item 7. Financial Statements and Exhibits. (c) Exhibits. 99.1 Press release dated July 7, 2004 by Yahoo! Inc. Item 12. Results of Operations and Financial Condition The information in this Current Report is being furnished and shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. On July 7, 2004, Yahoo! Inc., a Delaware corporation ("Yahoo!"), announced its financial results for the fiscal quarter ended June 30, 2004 and certain other information. A copy of Yahoo!'s press release announcing these financial results and certain other information is attached as Exhibit 99.1 hereto and incorporated by reference herein. The press release attached as an exhibit to this report includes "safe harbor" language pursuant to the Private Securities Litigation Reform Act of 1995, as amended, indicating that certain statements about the Company's business and other matters contained in the press release are "forward-looking" rather than "historic." The press release also states that a more thorough discussion of certain factors which may affect the Company's operating results is included, among other sections, 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 fiscal year ended December 31, 2003 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, which are on file with the Securities and Exchange Commission ("SEC") and available at the Securities and Exchange Commission's website (http://www.sec.gov), and will also be included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 to be filed with the Securities and Exchange Commission in the third quarter of 2004. The press release also discloses the financial measures revenues excluding traffic acquisition costs ("TAC"), operating income before depreciation and amortization, and free cash flow, which are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. We believe these financial measures provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of our core operating results. We believe these financial measures are useful to investors in allowing for greater transparency to supplemental information used by management in its financial and operational decision-making. In addition, we have historically reported similar financial measures to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting at this time. The Company believes that the non-GAAP financial measures revenues excluding TAC, operating income before depreciation and amortization, and free cash flow are helpful, when presented in conjunction with the comparable GAAP measures of gross profit, income from operations, and cash flow from operating activities.
Revenues excluding TAC is defined as gross profit before other cost of revenues. Following our acquisition of Overture Services, Inc. ("Overture"), on October 7, 2003, our total costs of revenue include TAC paid to affiliates of Overture in connection with its sponsored search services. TAC also comprises a significant percentage of the revenues reported from Overture. We believe revenues excluding TAC is a useful measure to management and investors because it is more comparable to our historically reported profitability numbers. A limitation of revenues excluding TAC is that other cost of revenues are excluded and therefore it does not represent the actual gross profit for the period. Operating income before depreciation and amortization is defined as income (loss) from operations before depreciation, amortization of intangible assets and amortization of stock compensation expense. We consider operating income before depreciation and amortization to be an important indicator of the operational strength of the Company. This measure eliminates the effects of depreciation, amortization of intangible assets and amortization of stock 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 compensation expenses related to our workforce. Management compensates for this limitation by providing supplemental information about stock compensation expense on the face of our consolidated statements of operations. Free cash flow is defined as cash flow from operating activities less net capital expenditures. In addition for the quarters ended June 30, 2002 and December 31, 2003, free cash flow also included change in long-term deferred revenue and Overture receivable settled through acquisition, respectively. Change in long-term deferred revenue represented cash payments received in advance of revenue recognized. Overture receivable settled through acquisition represented a Yahoo! accounts receivable balance owed from Overture that was settled as part of the acquisition. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated 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. In addition, management refers to these financial measures to facilitate internal and external comparisons to the Company's historical operating results, in making operating decisions, for budget planning purposes, and in some cases as a factor in determining management compensation. These measures should be considered in addition to, not as a substitute for, or superior to, gross profit, income from operations, cash flow from operating activities, or other measures of financial performance prepared in accordance with generally accepted accounting principles. The non-GAAP measures included in our press release have been reconciled to the most directly comparable GAAP measure as is required under SEC rules regarding the use of non-GAAP financial measures. As used herein, "GAAP" refers to accounting principles generally accepted in the United States.
SIGNATURES 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 thereunto duly authorized. YAHOO! INC. Date: July 7, 2004 By: /s/ Susan Decker ----------------------------------- Susan Decker Executive Vice President, Finance and Administration, and Chief Financial Officer
YAHOO! INC. INDEX TO EXHIBITS Exhibit Number Description - -------------- ----------- 99.1 Press Release dated July 7, 2004.
Exhibit 99.1 Yahoo! Reports Second Quarter 2004 Financial Results SUNNYVALE, Calif.--(BUSINESS WIRE)--July 7, 2004-- Company Posts Revenues of $832 Million, Operating Income of $149 Million, Operating Income Before Depreciation and Amortization of $234 Million Yahoo! Inc. (Nasdaq:YHOO) today reported results for the second quarter ended June 30, 2004. "Yahoo!'s second quarter results represent another record quarter for the Company and demonstrate continued execution of our core priorities," said Terry Semel, chairman and chief executive officer, Yahoo!. "Yahoo! is in the midst of a product renaissance, as we have been busier than ever rolling out new products and services we believe will be essential to our users." -- Revenues were $832 million for the second quarter of 2004, compared to $321 million for the same period of 2003. -- Revenues excluding traffic acquisition costs ("TAC") were $609 million for the second quarter of 2004, compared to $321 million for the same period of 2003. -- Gross profit for the second quarter of 2004 was $535 million, compared to $275 million for the same period of 2003. -- Operating income for the second quarter of 2004 was $149 million, compared to $63 million for the same period of 2003. -- Operating income before depreciation and amortization for the second quarter of 2004 was $234 million, compared to $98 million for the same period of 2003. -- Cash flow from operating activities for the second quarter of 2004 was $250 million, compared to $92 million for the same period of 2003. -- Free cash flow for the second quarter of 2004 was $194 million, compared to $71 million for the same period of 2003. "Yahoo! is benefiting from its diverse and balanced sources of revenue, which have well positioned the Company to deliver strong, consistent, and profitable growth," said Susan Decker, chief financial officer, Yahoo!. "Yahoo! remains committed to making the appropriate investments in our products and services in order to ensure that they remain among the most popular on the Internet, and continue to contribute to the creation of long-term shareholder value." Second Quarter 2004 Financial Highlights Cash flow from operating activities and Free cash flow: Cash flow from operating activities for the second quarter of 2004 totaled $250 million, compared to $92 million for the same period of 2003. Free cash flow for the second quarter of 2004 totaled $194 million, a 172 percent increase over the $71 million reported for the same period of 2003. Cash, cash equivalents and investments in marketable securities were approximately $2,650 million at June 30, 2004, compared to $2,790 million at March 31, 2004. The net decrease in cash, cash equivalents and investments in marketable securities balances is primarily a result of $530 million used for acquisitions completed in the second quarter of 2004, net of cash acquired, offset by free cash flow of $194 million and $225 million of cash generated from the issuance of common stock as a result of the exercise of employee stock options for the quarter ended June 30, 2004. Revenues: In the second quarter of 2004, Yahoo! reported revenues of $832 million, a 159 percent increase compared to the $321 million reported in the same period in 2003. Marketing services revenue for the second quarter of 2004 totaled $691 million, a 215 percent increase from the $219 million reported in the same period in 2003. The year over year increase in marketing services revenue resulted from strong growth in Yahoo!'s organic marketing services revenues, primarily in the search and marketplace properties, and incremental revenue associated with acquisitions completed during the past year. Fees revenue for the second quarter of 2004 totaled $104 million, a 49 percent increase compared to the $70 million reported in the same period in 2003. This increase was primarily driven by the growth in the number of paying relationships for Yahoo!'s premium services, which were approximately 6.4 million at June 30, 2004 compared to approximately 3.5 million at June 30, 2003. Listings revenue for the second quarter of 2004 totaled $38 million, a 17 percent increase compared to the $32 million reported in the same period in 2003. This increase was primarily driven by our search and marketplace listings. Revenues excluding TAC and Gross profit: Revenues excluding TAC for the second quarter of 2004 totaled $609 million, a 90 percent increase compared to the $321 million in the same period of 2003. Gross profit for the second quarter of 2004 totaled $535 million, compared to $275 million in the same period of 2003. The increase in revenues excluding TAC for the quarter ended June 30, 2004, when compared to the same period in 2003, resulted from the combination of a strong increase in revenues from Yahoo!'s organic marketing services revenues, as well as the incremental revenue associated with the acquisitions completed during the past year. Operating income and Operating income before depreciation and amortization: Operating income for the second quarter of 2004 totaled $149 million, compared to $63 million in the same period of 2003. Operating income before depreciation and amortization for the second quarter of 2004 totaled $234 million, a 138 percent increase compared to the $98 million achieved in the same period of 2003. The increase in operating income and operating income before depreciation and amortization for the quarter ended June 30, 2004, when compared to the same period in 2003, reflects strong growth in revenues excluding TAC while maintaining ongoing cost discipline. Net Income: Net income for the second quarter of 2004 was $113 million or $0.08 per diluted share, compared with $51 million or $0.04 per diluted share for the same period of 2003. Please refer to the "Note to Unaudited Condensed Consolidated Statements of Operations" for definition of these key financial measures and "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 Web site 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: 9286236 About Yahoo! Yahoo! Inc. is the No. 1 Internet brand globally and the most trafficked Internet destination. Headquartered in Sunnyvale, Calif., Yahoo!'s mission is to provide online products and services essential to consumers' lives and offer a full range of marketing solutions to enable businesses to connect with Yahoo!'s hundreds of millions of users worldwide. This press release includes the following financial measures: revenues excluding traffic acquisition costs, operating income before depreciation and amortization, and free cash flow. These measures are defined as non-GAAP financial measures by the Securities and Exchange Commission and 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 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, decreases or delays in marketing services spending, including performance of the Company's recently acquired businesses; the actual increases in demand by customers for Yahoo!'s premium services; acceptance of new products and services; the Company's ability to compete with new or existing competitors; general economic conditions; risks related to the integration of recent acquisitions; dependence on key personnel; and the dependence on third parties for technology, services, content and distribution. All information set forth in this release and its attachments is as of July 7, 2004. Yahoo! undertakes no duty to update this information. More information about potential factors that could affect the Company's business and financial results is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, including (without limitation) under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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 of Yahoo!'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, which will be filed with the SEC in the third quarter of 2004. 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, ---------------------- ---------------------- 2003 2004 2003 2004 ---------- ---------- ---------- ---------- Revenues $ 321,406 $ 832,299 $ 604,354 $1,590,085 Cost of revenues 46,842 297,383 89,974 579,088 ---------- ---------- ---------- ---------- Gross profit 274,564 534,916 514,380 1,010,997 ---------- ---------- ---------- ---------- Operating expenses: Sales and marketing 122,106 191,875 235,585 358,170 Product development 45,099 87,140 81,497 164,129 General and administrative 33,934 63,159 62,574 120,715 Stock compensation expense (1) 891 7,140 1,466 19,712 Amortization of intangibles 9,762 36,108 15,509 66,620 ---------- ---------- ---------- ---------- Total operating expenses 211,792 385,422 396,631 729,346 ---------- ---------- ---------- ---------- Income from operations 62,772 149,494 117,749 281,651 Other income, net 10,334 13,179 22,864 27,557 Earnings in equity interests 10,001 24,108 19,730 43,976 Minority interests in operations of consolidated subsidiaries (1,126) (1,752) (3,034) (2,234) ---------- ---------- ---------- ---------- Income before income taxes 81,981 185,029 157,309 350,950 Provision for income taxes 31,153 72,517 59,778 137,226 ---------- ---------- ---------- ---------- Net income $ 50,828 $ 112,512 $ 97,531 $ 213,724 ========== ========== ========== ========== Net income per share - diluted $ 0.04 $ 0.08 $ 0.08 $ 0.15 ========== ========== ========== ========== Shares used in per share calculation - diluted 1,257,154 1,449,707 1,244,365 1,438,128 ========== ========== ========== ========== (1) Stock compensation expense is allocated as follows: Sales and marketing $ 112 $ 2,376 $ 321 $ 5,981 Product development 588 2,548 874 7,271 General and administrative 191 2,216 271 6,460 ---------- ---------- ---------- ---------- Total stock compensation expense $ 891 $ 7,140 $ 1,466 $ 19,712 ========== ========== ========== ========== - ---------------------------------------------------------------------- Supplemental Financial Data (See Note) - --------------------------- Revenues excluding traffic acquisition costs ("TAC") $ 321,406 $ 609,141 $ 604,354 $1,159,291 Operating income before depreciation and amortization $ 98,166 $ 234,062 $ 182,791 $ 444,983 Free cash flow $ 71,353 $ 194,003 $ 149,478 $ 391,289 - ---------------------------------------------------------------------- Yahoo! Inc. Note to Unaudited Condensed Consolidated Statements of Operations The Company believes that the non-GAAP financial measures revenues excluding traffic acquisition costs ("TAC"), operating income before depreciation and amortization, and free cash flow are helpful, when presented in conjunction with the comparable GAAP measures of gross profit, income from operations, and cash flow from operating activities. Revenues excluding TAC is defined as gross profit before other cost of revenues. Following our acquisition of Overture Services, Inc. ("Overture"), on October 7, 2003, our total costs of revenue include TAC paid to affiliates of Overture in connection with its sponsored search services. TAC also comprises a significant percentage of the revenues reported from Overture. We believe revenues excluding TAC is a useful measure to management and investors because it is more comparable to our historically reported profitability numbers. A limitation of revenues excluding TAC is that other cost of revenues are excluded and therefore it does not represent the actual gross profit for the period. Operating income before depreciation and amortization is defined as income (loss) from operations before depreciation, amortization of intangible assets and amortization of stock compensation expense. We consider operating income before depreciation and amortization to be an important indicator of the operational strength of the Company. This measure eliminates the effects of depreciation, amortization of intangible assets and amortization of stock 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 compensation expenses related to our workforce. Management compensates for this limitation by providing supplemental information about stock compensation expense on the face of our consolidated statements of operations. Free cash flow is defined as cash flow from operating activities less net capital expenditures. In addition, for the quarters ended June 30, 2002 and December 31, 2003, free cash flow also included change in long-term deferred revenue and Overture receivable settled through acquisition, respectively. Change in long-term deferred revenue represented cash payments received in advance of revenue recognized. Overture receivable settled through acquisition represented a Yahoo! accounts receivable balance owed from Overture that was settled as part of the acquisition. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated 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. In addition, management refers to these financial measures to facilitate internal and external comparisons to the Company's historical operating results, in making operating decisions, for budget planning purposes, and in some cases as a factor in determining management compensation. These measures should be considered in addition to, not as a substitute for, or superior to, gross profit, income from operations, cash flow from operating activities, or other measures of financial performance prepared in accordance with generally accepted accounting principles. Yahoo! Inc. Reconciliations to Unaudited Condensed Consolidated Statements of Operations (in thousands) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ---------------------- 2003 2004 2003 2004 ----------- ----------- ----------- ---------- Revenues for groups of similar services: Marketing services $ 219,198 $ 690,634 $ 409,163 $1,326,102 Fees 69,926 103,851 133,655 192,321 Listings 32,282 37,814 61,536 71,662 ----------- ----------- ----------- ---------- Total revenues $ 321,406 $ 832,299 $ 604,354 $1,590,085 =========== =========== =========== ========== Revenues by segment: United States $ 271,345 $ 624,161 $ 509,891 $1,223,432 International 50,061 208,138 94,463 366,653 ----------- ----------- ----------- ---------- Total revenues $ 321,406 $ 832,299 $ 604,354 $1,590,085 =========== =========== =========== ========== Cost of revenues: Traffic acquisition costs ("TAC") $ - $ 223,158 $ - $ 430,794 Other cost of revenues 46,842 74,225 89,974 148,294 ----------- ----------- ----------- ---------- Total cost of revenues $ 46,842 $ 297,383 $ 89,974 $ 579,088 =========== =========== =========== ========== Revenues excluding TAC: Gross profit $ 274,564 $ 534,916 $ 514,380 $1,010,997 Other cost of revenues 46,842 74,225 89,974 148,294 ----------- ----------- ----------- ---------- Revenues excluding TAC $ 321,406 $ 609,141 $ 604,354 $1,159,291 =========== =========== =========== ========== Revenues excluding TAC by segment: United States: Gross profit $ 232,890 $ 413,788 $ 436,118 $ 802,896 Other cost of revenues 38,455 60,304 73,773 122,921 ----------- ----------- ----------- ---------- Revenues excluding TAC $ 271,345 $ 474,092 $ 509,891 $ 925,817 =========== =========== =========== ========== International: Gross profit $ 41,674 $ 121,128 $ 78,262 $ 208,101 Other cost of revenues 8,387 13,921 16,201 25,373 ----------- ----------- ----------- ---------- Revenues excluding TAC $ 50,061 $ 135,049 $ 94,463 $ 233,474 =========== =========== =========== ========== Operating income before depreciation and amortization: Income from operations $ 62,772 $ 149,494 $ 117,749 $ 281,651 Depreciation and amortization 34,503 77,428 63,576 143,620 Stock compensation expense 891 7,140 1,466 19,712 ----------- ----------- ----------- ---------- Operating income before depreciation and amortization $ 98,166 $ 234,062 $ 182,791 $ 444,983 =========== =========== =========== ========== Operating income before depreciation and amortization by segment: Operating income before depreciation and amortization - United States $ 91,446 $ 198,365 $ 168,969 $ 389,619 Operating income before depreciation and amortization - International 6,720 35,697 13,822 55,364 ----------- ----------- ----------- ---------- Operating income before depreciation and amortization 98,166 234,062 182,791 444,983 Corporate operating costs and expenses: Depreciation and amortization (34,503) (77,428) (63,576) (143,620) Stock compensation expense (891) (7,140) (1,466) (19,712) ----------- ----------- ----------- ---------- Income from operations $ 62,772 $ 149,494 $ 117,749 $ 281,651 =========== =========== =========== ========== United States: Income from operations $ 60,472 $ 128,556 $ 111,472 $ 249,845 Depreciation and amortization 30,083 63,711 56,031 123,011 Stock compensation expense 891 6,098 1,466 16,763 ----------- ----------- ----------- ---------- Operating income before depreciation and amortization - United States $ 91,446 $ 198,365 $ 168,969 $ 389,619 =========== =========== =========== ========== International: Income from operations $ 2,300 $ 20,938 $ 6,277 $ 31,806 Depreciation and amortization 4,420 13,717 7,545 20,609 Stock compensation expense - 1,042 - 2,949 ----------- ----------- ----------- ---------- Operating income before depreciation and amortization - International $ 6,720 $ 35,697 $ 13,822 $ 55,364 =========== =========== =========== ========== Free cash flow: Cash flow from operating activities $ 92,123 $ 249,702 $ 190,751 $ 485,677 Acquisition of property and equipment, net (20,770) (55,699) (41,273) (94,388) ----------- ----------- ----------- ---------- Free cash flow $ 71,353 $ 194,003 $ 149,478 $ 391,289 =========== =========== =========== ========== Yahoo! Inc. Business Outlook Business Outlook The following business outlook is based on current information and expectations as of July 7, 2004. Yahoo!'s business outlook as of today is expected to be available on the Company's Investor Relations Web site throughout the current quarter. It is currently expected the full business outlook will not be updated until the release of Yahoo!'s next quarterly earnings announcement, notwithstanding subsequent developments; however, Yahoo! may update the full business outlook or any portion thereof at any time. Three months Year ending ending September 30, December 31, 2004 2004 ------------ ---------------- Revenues excluding traffic acquisition costs (2) ("TAC") outlook (in millions): Gross Profit $535 - $570 $2,145 - $2,215 Other cost of revenues $75 - $80 $310 - $320 ------------ ---------------- Revenues excluding TAC $610- $650 $2,455 - $2,535 ============ ================ Operating income before depreciation and amortization (2) outlook (in millions): Income from operations $152 - $169 $620 - $650 Depreciation and amortization $73 - $78 $295 - $310 Stock compensation expense $5 - $8 $30 - $35 ------------ ---------------- Operating income before depreciation and amortization $230 - $255 $945 - $995 ============ ================ (2) 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, ---------------------- ---------------------- 2003 2004 2003 2004 ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 50,828 $ 112,512 $ 97,531 $ 213,724 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,503 77,428 63,576 143,620 Tax benefits from stock options 28,588 60,371 49,645 121,121 Earnings in equity interests (10,001) (24,108) (19,730) (43,976) Minority interests in operations of consolidated subsidiaries 1,126 1,752 3,034 2,234 Stock compensation expense 891 7,140 1,466 19,712 Gains from sale of assets and other, net 4,535 10,889 7,547 9,616 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (8,182) (37,011) (23,529) (35,822) Prepaid expenses and other assets (9,180) 4,992 (3,965) 582 Accounts payable (3,008) 4,316 (405) (13,593) Accrued expenses and other liabilities (5,193) 19,566 (933) 51,869 Deferred revenue 7,216 11,855 16,514 16,590 ---------- ---------- ---------- ---------- Net cash provided by operating activities 92,123 249,702 190,751 485,677 ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net (20,770) (55,699) (41,273) (94,388) Purchases of marketable securities (528,738) (347,458) (666,178) (862,013) Proceeds from sales and maturities of marketable securities 219,981 369,663 650,499 751,723 Acquisitions, net of cash acquired - (530,110) (228,318) (573,877) Purchases of other investments (7,555) (491) (6,274) (491) Proceeds from sale of assets and other - 6,068 - 16,979 ---------- ---------- ---------- ---------- Net cash used in investing activities (337,082) (558,027) (291,544) (762,067) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt, net 733,125 - 733,125 - Proceeds from issuance of common stock, net 105,044 225,383 128,611 317,678 Structured stock repurchase - - - (50,000) ---------- ---------- ---------- ---------- Net cash provided by financing activities 838,169 225,383 861,736 267,678 ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 3,929 13 3,667 3,053 Net change in cash and cash equivalents 597,139 (82,929) 764,610 (5,659) Cash and cash equivalents, beginning of period 478,443 790,809 310,972 713,539 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period $1,075,582 $ 707,880 $1,075,582 $ 707,880 ========== ========== ========== ========== Yahoo! Inc. Condensed Consolidated Balance Sheets (in thousands) Dec. 31, June 30, 2003 2004 ---------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 713,539 $ 707,880 Short-term investments in marketable securities 595,978 829,387 Accounts receivable, net 282,415 337,082 Prepaid expenses and other current assets 129,777 138,518 ---------- ---------- Total current assets 1,721,709 2,012,867 Long-term investments in marketable securities 1,261,693 1,112,556 Property and equipment, net 449,512 463,890 Goodwill 1,805,561 2,295,585 Intangible assets, net 445,640 504,841 Other assets 247,539 270,288 ---------- ---------- Total assets $5,931,654 $6,660,027 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,890 $ 27,075 Accrued and other current liabilities 483,628 552,867 Deferred revenue 192,278 213,378 ---------- ---------- Total current liabilities 707,796 793,320 Long term debt 750,000 750,000 Other liabilities 72,890 111,768 Minority interests in consolidated subsidiaries 37,478 43,812 Stockholders' equity 4,363,490 4,961,127 ---------- ---------- Total liabilities and stockholders' equity $5,931,654 $6,660,027 ========== ========== Yahoo! Inc. Unaudited Supplemental Financial Information and Business Metrics (in thousands) Q1 Q2 Q3 Q4 2003 2003 2003 2003 ---------- ---------- ---------- ---------- Revenues for groups of similar services: Marketing services $ 189,965 $ 219,198 $ 245,072 $ 545,498 Fees 63,729 69,926 79,358 85,179 Listings 29,254 32,282 32,391 33,245 ---------- ---------- ---------- ---------- Total revenues $ 282,948 $ 321,406 $ 356,821 $ 663,922 ========== ========== ========== ========== Revenues for groups of similar services (Trailing Twelve Months): Marketing services $ 703,858 $ 771,346 $ 850,657 $1,199,733 Fees 232,124 252,987 275,014 298,192 Listings 107,368 114,631 121,291 127,172 ---------- ---------- ---------- ---------- Total revenues $1,043,350 $1,138,964 $1,246,962 $1,625,097 ========== ========== ========== ========== Revenues by segment: United States $ 238,546 $ 271,345 $ 299,759 $ 545,503 International 44,402 50,061 57,062 118,419 ---------- ---------- ---------- ---------- Total revenues $ 282,948 $ 321,406 $ 356,821 $ 663,922 ========== ========== ========== ========== Revenues by segment (Trailing Twelve Months): United States $ 878,532 $ 962,412 $1,052,036 $1,355,153 International 164,818 176,552 194,926 269,944 ---------- ---------- ---------- ---------- Total revenues $1,043,350 $1,138,964 $1,246,962 $1,625,097 ========== ========== ========== ========== Cost of revenues: Traffic acquisition costs ("TAC") $ - $ - $ - $ 152,583 Other cost of revenues 43,132 46,842 47,287 68,259 ---------- ---------- ---------- ---------- Total cost of revenues $ 43,132 $ 46,842 $ 47,287 $ 220,842 ========== ========== ========== ========== Cost of revenues (Trailing Twelve Months): Traffic acquisition costs $ - $ - $ - $ 152,583 Other cost of revenues 168,192 173,326 179,580 205,520 ---------- ---------- ---------- ---------- Total cost of revenues $ 168,192 $ 173,326 $ 179,580 $ 358,103 ========== ========== ========== ========== Revenues excluding TAC: Gross profit $ 239,816 $ 274,564 $ 309,534 $ 443,080 Other cost of revenues 43,132 46,842 47,287 68,259 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 282,948 $ 321,406 $ 356,821 $ 511,339 ========== ========== ========== ========== Revenues excluding TAC (Trailing twelve months): Gross profit $ 875,158 $ 965,638 $1,067,382 $1,266,994 Other cost of revenues 168,192 173,326 179,580 205,520 ---------- ---------- ---------- ---------- Revenues excluding TAC $1,043,350 $1,138,964 $1,246,962 $1,472,514 ========== ========== ========== ========== Revenues excluding TAC by segment: United States: Gross profit $ 203,228 $ 232,890 $ 261,290 $ 371,557 Other cost of revenues 35,318 38,455 38,469 58,446 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 238,546 $ 271,345 $ 299,759 $ 430,003 ========== ========== ========== ========== International: Gross profit $ 36,588 $ 41,674 $ 48,244 $ 71,523 Other cost of revenues 7,814 8,387 8,818 9,813 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 44,402 $ 50,061 $ 57,062 $ 81,336 ========== ========== ========== ========== Revenues excluding TAC by segment (Trailing Twelve Months): United States: Gross profit $ 744,266 $ 822,088 $ 905,792 $1,068,965 Other cost of revenues 134,266 140,324 146,244 170,688 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 878,532 $ 962,412 $1,052,036 $1,239,653 ========== ========== ========== ========== International: Gross profit $ 130,892 $ 143,550 $ 161,590 $ 198,029 Other cost of revenues 33,926 33,002 33,336 34,832 ---------- ---------- ---------- ---------- Revenues excluding TAC $ 164,818 $ 176,552 $ 194,926 $ 232,861 ========== ========== ========== ========== Operating income before depreciation and amortization: Income from operations $ 54,977 $ 62,772 $ 83,498 $ 94,419 Depreciation and amortization 29,073 34,503 33,013 63,099 Stock compensation expense 575 891 485 20,078 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization $ 84,625 $ 98,166 $ 116,996 $ 177,596 ========== ========== ========== ========== Operating income before depreciation and amortization (Trailing Twelve Months): Income from operations $ 147,340 $ 202,594 $ 256,615 $ 295,666 Depreciation and amortization 115,507 122,534 125,796 159,688 Stock compensation expense 3,357 3,129 2,661 22,029 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization $ 266,204 $ 328,257 $ 385,072 $ 477,383 ========== ========== ========== ========== Operating income before depreciation and amortization by segment: Operating income before depreciation and amortization - United States $ 77,523 $ 91,446 $ 106,607 $ 165,796 Operating income before depreciation and amortization - International 7,102 6,720 10,389 11,800 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization 84,625 98,166 116,996 177,596 Depreciation and amortization (29,073) (34,503) (33,013) (63,099) Stock compensation expense (575) (891) (485) (20,078) ---------- ---------- ---------- ---------- Income from operations $ 54,977 $ 62,772 $ 83,498 $ 94,419 ========== ========== ========== ========== Operating income before depreciation and amortization by segment (Trailing Twelve Months): Operating income before depreciation and amortization - United States $ 257,795 $ 309,568 $ 357,601 $ 441,372 Operating income before depreciation and amortization - International 8,409 18,689 27,471 36,011 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization 266,204 328,257 385,072 477,383 Depreciation and amortization (115,507) (122,534) (125,796) (159,688) Stock compensation expense (3,357) (3,129) (2,661) (22,029) ---------- ---------- ---------- ---------- Income from operations $ 147,340 $ 202,594 $ 256,615 $ 295,666 ========== ========== ========== ========== Operating income before depreciation and amortization by segment: United States: Income from operations $ 51,000 $ 60,472 $ 77,684 $ 90,246 Depreciation and amortization 25,948 30,083 28,438 57,423 Stock compensation expense 575 891 485 18,127 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization - United States $ 77,523 $ 91,446 $ 106,607 $ 165,796 ========== ========== ========== ========== International: Income from operations $ 3,977 $ 2,300 $ 5,814 $ 4,173 Depreciation and amortization 3,125 4,420 4,575 5,676 Stock compensation expense - - - 1,951 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization - International $ 7,102 $ 6,720 $ 10,389 $ 11,800 ========== ========== ========== ========== Operating income before depreciation and amortization by segment (Trailing Twelve Months): United States: Income from operations $ 150,646 $ 197,244 $ 244,177 $ 279,402 Depreciation and amortization 103,792 109,195 110,763 141,892 Stock compensation expense 3,357 3,129 2,661 20,078 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization - United States $ 257,795 $ 309,568 $ 357,601 $ 441,372 ========== ========== ========== ========== International: Income (loss) from operations $ (3,306)$ 5,350 $ 12,438 $ 16,264 Depreciation and amortization 11,715 13,339 15,033 17,796 Stock compensation expense - - - 1,951 ---------- ---------- ---------- ---------- Operating income before depreciation and amortization - International $ 8,409 $ 18,689 $ 27,471 $ 36,011 ========== ========== ========== ========== Free cash flow: Cash flow from operating activities $ 98,628 $ 92,123 $ 135,533 $ 101,860 Acquisition of property and equipment, net (20,503) (20,770) (38,445) (37,611) Overture receivable settled through acquisition - - - 28,071 ---------- ---------- ---------- ---------- Free cash flow $ 78,125 $ 71,353 $ 97,088 $ 92,320 ========== ========== ========== ========== Free cash flow (Trailing Twelve Months): Cash flow from operating activities $ 353,633 $ 342,374 $ 405,642 $ 428,144 Acquisition of property and equipment, net (64,769) (71,238) (96,390) (117,329) Change in long-term deferred revenue (30,000) - - - Overture receivable settled through acquisition - - - 28,071 ---------- ---------- ---------- ---------- Free cash flow $ 258,864 $ 271,136 $ 309,252 $ 338,886 ========== ========== ========== ========== Q1 Q2 2004 2004 ---------- ---------- Revenues for groups of similar services: Marketing services $ 635,468 $ 690,634 Fees 88,470 103,851 Listings 33,848 37,814 ---------- ---------- Total revenues $ 757,786 $ 832,299 ========== ========== Revenues for groups of similar services (Trailing Twelve Months): Marketing services $1,645,236 $2,116,672 Fees 322,933 356,858 Listings 131,766 137,298 ---------- ---------- Total revenues $2,099,935 $2,610,828 ========== ========== Revenues by segment: United States $ 599,271 $ 624,161 International 158,515 208,138 ---------- ---------- Total revenues $ 757,786 $ 832,299 ========== ========== Revenues by segment (Trailing Twelve Months): United States $1,715,878 $2,068,694 International 384,057 542,134 ---------- ---------- Total revenues $2,099,935 $2,610,828 ========== ========== Cost of revenues: Traffic acquisition costs ("TAC") $ 207,636 $ 223,158 Other cost of revenues 74,069 74,225 ---------- ---------- Total cost of revenues $ 281,705 $ 297,383 ========== ========== Cost of revenues (Trailing Twelve Months): Traffic acquisition costs $ 360,219 $ 583,377 Other cost of revenues 236,457 263,840 ---------- ---------- Total cost of revenues $ 596,676 $ 847,217 ========== ========== Revenues excluding TAC: Gross profit $ 476,081 $ 534,916 Other cost of revenues 74,069 74,225 ---------- ---------- Revenues excluding TAC $ 550,150 $ 609,141 ========== ========== Revenues excluding TAC (Trailing twelve months): Gross profit $1,503,259 $1,763,611 Other cost of revenues 236,457 263,840 ---------- ---------- Revenues excluding TAC $1,739,716 $2,027,451 ========== ========== Revenues excluding TAC by segment: United States: Gross profit $ 389,108 $ 413,788 Other cost of revenues 62,617 60,304 ---------- ---------- Revenues excluding TAC $ 451,725 $ 474,092 ========== ========== International: Gross profit $ 86,973 $ 121,128 Other cost of revenues 11,452 13,921 ---------- ---------- Revenues excluding TAC $ 98,425 $ 135,049 ========== ========== Revenues excluding TAC by segment (Trailing Twelve Months): United States: Gross profit $1,254,845 $1,435,743 Other cost of revenues 197,987 219,836 ---------- ---------- Revenues excluding TAC $1,452,832 $1,655,579 ========== ========== International: Gross profit $ 248,414 $ 327,868 Other cost of revenues 38,470 44,004 ---------- ---------- Revenues excluding TAC $ 286,884 $ 371,872 ========== ========== Operating income before depreciation and amortization: Income from operations $ 132,157 $ 149,494 Depreciation and amortization 66,192 77,428 Stock compensation expense 12,572 7,140 ---------- ---------- Operating income before depreciation and amortization $ 210,921 $ 234,062 ========== ========== Operating income before depreciation and amortization (Trailing Twelve Months): Income from operations $ 372,846 $ 459,568 Depreciation and amortization 196,807 239,732 Stock compensation expense 34,026 40,275 ---------- ---------- Operating income before depreciation and amortization $ 603,679 $ 739,575 ========== ========== Operating income before depreciation and amortization by segment: Operating income before depreciation and amortization - United States $ 191,254 $ 198,365 Operating income before depreciation and amortization - International 19,667 35,697 ---------- ---------- Operating income before depreciation and amortization 210,921 234,062 Depreciation and amortization (66,192) (77,428) Stock compensation expense (12,572) (7,140) ---------- ---------- Income from operations $ 132,157 $ 149,494 ========== ========== Operating income before depreciation and amortization by segment (Trailing Twelve Months): Operating income before depreciation and amortization - United States $ 555,103 $ 662,022 Operating income before depreciation and amortization - International 48,576 77,553 ---------- ---------- Operating income before depreciation and amortization 603,679 739,575 Depreciation and amortization (196,807) (239,732) Stock compensation expense (34,026) (40,275) ---------- ---------- Income from operations $ 372,846 $ 459,568 ========== ========== Operating income before depreciation and amortization by segment: United States: Income from operations $ 121,289 $ 128,556 Depreciation and amortization 59,300 63,711 Stock compensation expense 10,665 6,098 ---------- ---------- Operating income before depreciation and amortization - United States $ 191,254 $ 198,365 ========== ========== International: Income from operations $ 10,868 $ 20,938 Depreciation and amortization 6,892 13,717 Stock compensation expense 1,907 1,042 ---------- ---------- Operating income before depreciation and amortization - International $ 19,667 $ 35,697 ========== ========== Operating income before depreciation and amortization by segment (Trailing Twelve Months): United States: Income from operations $ 349,691 $ 417,775 Depreciation and amortization 175,244 208,872 Stock compensation expense 30,168 35,375 ---------- ---------- Operating income before depreciation and amortization - United States $ 555,103 $ 662,022 ========== ========== International: Income (loss) from operations $ 23,155 $ 41,793 Depreciation and amortization 21,563 30,860 Stock compensation expense 3,858 4,900 ---------- ---------- Operating income before depreciation and amortization - International $ 48,576 $ 77,553 ========== ========== Free cash flow: Cash flow from operating activities $ 235,975 $ 249,702 Acquisition of property and equipment, net (38,689) (55,699) Overture receivable settled through acquisition - - ---------- ---------- Free cash flow $ 197,286 $ 194,003 ========== ========== Free cash flow (Trailing Twelve Months): Cash flow from operating activities $ 565,491 $ 723,070 Acquisition of property and equipment, net (135,515) (170,444) Change in long-term deferred revenue - - Overture receivable settled through acquisition 28,071 28,071 ---------- ---------- Free cash flow $ 458,047 $ 580,697 ========== ========== CONTACT: Yahoo! Inc. Brian Nelson, 408-349-7329 (Media Relations) bnelson@yahoo-inc.com Cathy La Rocca, 408-349-5188 (Investor Relations) cathy@yahoo-inc.com or Fleishman-Hillard Ruben Osorio, 415-318-4108 (Media Relations) osorior@fleishman.com