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Yahoo! Reports Third Quarter 2012 Results

Stocks in this article: YHOO

About Yahoo!

Yahoo! is focused on creating deeply personal digital experiences that keep more than half a billion people connected to what matters most to them, across devices and around the globe. Yahoo!'s unique combination of Science + Art + Scale connects advertisers to the consumers who build their businesses. Yahoo! is headquartered in Sunnyvale, California. For more information, visit the pressroom ( pressroom.yahoo.net) or the company's blog, Yodel Anecdotal ( yodel.yahoo.com).

“Affiliates” refers to the third-party entities that have integrated Yahoo!’s advertising offerings into their Websites or other offerings (those Websites and other offerings, “Affiliate sites”).

“Alibaba” means Alibaba Group Holding Limited.

“Search Agreement” refers to the Search and Advertising Services and Sales Agreement between Yahoo! and Microsoft Corporation, as amended.

“TAC” refers to traffic acquisition costs. TAC consists of payments to Affiliates and payments made to companies that direct consumer and business traffic to Yahoo! Properties.

“Yahoo! Properties” refers to the online properties and services that Yahoo! provides to users.

This press release contains forward-looking statements concerning Yahoo!'s expected financial performance, as well as Yahoo!'s strategic and operational plans (including, without limitation, the quotation from management). Risks and uncertainties may cause actual results to 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 impact of changes to our management, and organizational structure and strategic business plan; Yahoo!'s ability to compete with new or existing competitors; reduction in spending by, or loss of, advertising customers; risks associated with the Search Agreement with Microsoft Corporation; risks related to Yahoo!’s regulatory environment; interruptions or delays in the provision of Yahoo!’s services; security breaches; acceptance by users of new products and services; risks related to joint ventures and the integration of acquisitions; risks related to Yahoo!'s international operations; adverse results in litigation, including intellectual property infringement claims and derivative and class actions; Yahoo!'s ability to protect its intellectual property and the value of its brands; dependence on third parties for technology, services, content, and distribution; and general economic conditions. All information set forth in this press release and its attachments is as of October 22, 2012. Yahoo! does not intend, and undertakes no duty, to update this information to reflect subsequent 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, 2011, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, which are on file with the SEC and available on 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, 2012, which will be filed with the SEC in the fourth quarter of 2012.

Yahoo!, the Yahoo! logos, and IntoNow 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 Balance Sheets

(in thousands)

 
   

 

December 31,

   

 

September 30,

 

2011

 

 

2012

 
 
ASSETS
Current assets:
Cash and cash equivalents $ 1,562,390 $ 7,560,400
Short-term marketable debt securities 493,189 852,816
Accounts receivable, net 1,037,474 953,671
Prepaid expenses and other current assets 359,483 318,892
Total current assets 3,452,536 9,685,779
 
Long-term marketable debt securities 474,338 1,013,555
Other long-term investments - 802,609
Property and equipment, net 1,730,888 1,671,234
Goodwill 3,900,752 3,910,245
Intangible assets, net 254,600 173,918
Other long-term assets 220,628 548,182
Investments in equity interests 4,749,044 2,608,605
 
Total assets $ 14,782,786 $ 20,414,127
 
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 166,595 $ 147,943
Accrued expenses and other current liabilities 846,044 3,049,074
Deferred revenue 194,722 309,265
Total current liabilities 1,207,361 3,506,282
 
Long-term deferred revenue 43,639 444,415
Capital lease and other long-term liabilities 134,905 127,531
Deferred and other long-term tax liabilities, net 815,534 730,378
Total liabilities 2,201,439 4,808,606
 
Total Yahoo! Inc. stockholders' equity 12,541,067 15,561,503
Noncontrolling interests 40,280 44,018
Total equity 12,581,347 15,605,521
 
Total liabilities and equity $ 14,782,786 $ 20,414,127

 
Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
 
 
  Three Months Ended   Nine Months Ended
September 30,   September 30,
  2011       2012     2011       2012  
 
 
Revenue $ 1,216,665 $ 1,201,732 $ 3,660,046 $ 3,640,759
 
Operating expenses:

Cost of revenue - Traffic acquisition costs

144,991 112,829 447,918 393,945

Cost of revenue - Other

239,002 282,081 720,017 814,513

Sales and marketing

290,520 269,272 832,827 827,450

Product development

229,230 217,301 683,558 645,407

General and administrative

129,954 135,249 384,674 395,637

Amortization of intangibles

8,435 8,084 25,067 27,893

Restructuring charges, net

(2,721 ) 24,727   8,091   159,536  

Total operating expenses

1,039,411   1,049,543   3,102,152   3,264,381  
 
Income from operations 177,254 152,189 557,894 376,378
 
Other income, net 18,046   4,607,656   17,407   4,630,109  
 
Income before income taxes and earnings in equity interests 195,300 4,759,845 575,301 5,006,487
 
Provision for income taxes (55,731 ) (1,774,094 ) (163,480 ) (1,857,036 )
Earnings in equity interests 158,775   175,265   349,857   527,499  
 
Net income 298,344 3,161,016 761,678 3,676,950
 

Less: Net income attributable to noncontrolling interests

(5,053 ) (778 ) (8,423 ) (3,738 )
 
Net income attributable to Yahoo! Inc. $ 293,291   $ 3,160,238   $ 753,255   $ 3,673,212  
 
Net income attributable to Yahoo! Inc. common stockholders per share - diluted $ 0.23   $ 2.64   $ 0.58   $ 3.02  
 
Shares used in per share calculation - diluted 1,259,576   1,195,085   1,296,040   1,214,430  
 
Stock-based compensation expense by function:

Cost of revenue - Other

$ 956 $ 2,363 $ 2,479 $ 7,871

Sales and marketing

16,759 19,876 42,829 59,954

Product development

21,093 17,050 64,296 54,329

General and administrative

12,139 22,077 35,507 44,749

Restructuring expense reversals, net

- - (1,278 ) (3,429 )
                           
 

Supplemental Financial Data:

Revenue ex-TAC $ 1,071,674 $ 1,088,903 $ 3,212,128 $ 3,246,814
Free cash flow (1) $ 246,714 $ 920,424 $ 398,790 $ 1,209,637
                           
 

(1)

 

The three and nine months ended September 30, 2012 includes a payment of $550 million from Alibaba related to a technology and intellectual property license agreement.

Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
  Three Months Ended     Nine Months Ended
September 30, September 30,
2011       2012 2011       2012
   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 298,344 $ 3,161,016 $ 761,678 $ 3,676,950

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 128,922 146,483 404,823 401,022
Amortization of intangible assets 28,791 23,878 87,784 84,087
Stock-based compensation expense, net 50,947 61,366 143,833 163,474
Non-cash restructuring charges - 1,824 - 40,462
Tax benefits from stock-based awards (2,509 ) (5,536 ) 9,974 (9,471 )
Excess tax benefits from stock-based awards (14,490 ) (13,981 ) (44,715 ) (30,751 )
Deferred income taxes 22,909 (872,814 ) 68,740 (891,288 )
Earnings in equity interests (158,775 ) (175,265 ) (349,857 ) (527,499 )
Dividends received from equity investees - - 75,391 83,648
Gain related to sale of Alibaba shares - (4,603,322 ) - (4,603,322 )
Gain from sale of investments, assets, and other, net (9,970 ) 654 12,822 (18,308 )
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 69,400 96,850 156,092 86,942
Prepaid expenses and other (42,886 ) 30,041 10,407 41,059
Accounts payable (16,495 ) 13,257 (27,316 ) (22,457 )
Accrued expenses and other liabilities 34,963 2,644,717 (351,081 ) 2,628,962
Deferred revenue (32,985 ) 537,140   (66,103 ) 514,811  
Net cash provided by operating activities (1) 356,166   1,046,308   892,472   1,618,321  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net (123,942 ) (139,865 ) (463,006 ) (355,787 )
Purchases of marketable debt securities (488,702 ) (1,193,594 ) (1,613,298 ) (1,838,860 )
Proceeds from sales of marketable debt securities 185,000 136,540 1,067,229 684,979
Proceeds from maturities of marketable debt securities 568,976 52,155 1,226,892 250,653

Proceeds related to sale of Alibaba shares, net

- 6,247,728 - 6,247,728
Purchases of intangible assets (60 ) - (11,020 ) (3,088 )
Proceeds from the sale of investments 21,271 - 21,271 26,132
Acquisitions, net of cash acquired - - (68,812 ) -
Other investing activities, net (5,912 ) -   (5,763 ) (9,421 )
Net cash provided by investing activities 156,631   5,102,964   153,493   5,002,336  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 8,150 38,549 106,697 116,420
Repurchases of common stock (593,485 ) (190,372 ) (1,202,504 ) (716,379 )

Excess tax benefits from stock-based awards

14,490 13,981 44,715 30,751

Tax withholdings related to net share settlements of restricted stock awards and restricted stock units

(2,380 ) (9,603 ) (36,049 ) (48,097 )
Other financing activities, net (812 ) (1,297 ) (8,333 ) (3,519 )
Net cash used in financing activities (574,037 ) (148,742 ) (1,095,474 ) (620,824 )
 
Effect of exchange rate changes on cash and cash equivalents (55,378 ) 20,601 (12,699 ) (1,823 )
 
Net change in cash and cash equivalents (116,618 ) 6,021,131 (62,208 ) 5,998,010
Cash and cash equivalents, beginning of period 1,580,837   1,539,269   1,526,427   1,562,390  
 
Cash and cash equivalents, end of period $ 1,464,219   $ 7,560,400   $ 1,464,219   $ 7,560,400  
 

(1)

 

The three and nine months ended September 30, 2012 includes a payment of $550 million from Alibaba related to a technology and intellectual property license agreement.





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