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Yahoo! Reports Third Quarter 2012 Results

Free cash flow is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based awards), less acquisition of property and equipment, net and dividends received from equity investees. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet, and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company’s unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.

Non-GAAP income from operations is defined as income from operations excluding certain gains, losses, and expenses that we do not believe are indicative of our ongoing operating results. We consider non-GAAP income from operations to be a profitability measure which facilitates the forecasting of our operating results for future periods and allows for the comparison of our results to historical periods. A limitation of non-GAAP income from operations is that it does not include all items that impact our income from operations for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measure of income from operations which includes the gains, losses, and expenses that are excluded from non-GAAP income from operations.

Non-GAAP net income is defined as net income attributable to Yahoo! Inc. excluding certain gains, losses, expenses, and their related tax effects that we do not believe are indicative of our ongoing results. We consider non-GAAP net income and non-GAAP net income per diluted share to be profitability measures which facilitate the forecasting of our results for future periods and allow for the comparison of our results to historical periods. A limitation of non-GAAP net income and non-GAAP net income per diluted share is that they do not include all items that impact our net income and net income per diluted share for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measures of net income attributable to Yahoo! Inc. and net income attributable to Yahoo! Inc. common stockholders per share - diluted, both of which include the gains, losses, expenses and related tax effects that are excluded from non-GAAP net income and non-GAAP net income per diluted share.

Yahoo! Inc.
Supplemental Financial Data
(in thousands)
 
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2011     2012   2011     2012  
Revenue for groups of similar services:
Display $ 502,102 $ 506,002 $ 1,548,262 $ 1,552,191
Search 466,785 472,537 1,388,580 1,403,903
Other 247,778   223,193   723,204   684,665  
Total revenue $ 1,216,665   $ 1,201,732   $ 3,660,046   $ 3,640,759  
 
Revenue excluding traffic acquisition costs ("revenue ex-TAC") for groups of similar services:
GAAP display revenue $ 502,102 $ 506,002 $ 1,548,262 $ 1,552,191
TAC associated with display revenue (52,657 ) (54,361 ) (161,396 ) (173,339 )
Display revenue ex-TAC $ 449,445   $ 451,641   $ 1,386,866   $ 1,378,852  
 
GAAP search revenue $ 466,785 $ 472,537 $ 1,388,580 $ 1,403,903
TAC associated with search revenue for non-transitioned markets (92,334 ) (58,468 ) (286,382 ) (220,606 )
Search revenue ex-TAC $ 374,451   $ 414,069   $ 1,102,198   $ 1,183,297  
 
Other GAAP revenue $ 247,778 $ 223,193 $ 723,204 $ 684,665
TAC associated with other GAAP revenue -   -   (140 ) -  
Other revenue ex-TAC $ 247,778   $ 223,193   $ 723,064   $ 684,665  
 
Revenue ex-TAC:
GAAP revenue $ 1,216,665 $ 1,201,732 $ 3,660,046 $ 3,640,759
TAC (144,991 ) (112,829 ) (447,918 ) (393,945 )
Revenue ex-TAC $ 1,071,674   $ 1,088,903   $ 3,212,128   $ 3,246,814  
 
Revenue ex-TAC by segment:
Americas:
GAAP revenue $ 791,240 $ 843,731 $ 2,418,209 $ 2,501,515
TAC (37,493 ) (41,289 ) (115,038 ) (130,154 )
Revenue ex-TAC $ 753,747   $ 802,442   $ 2,303,171   $ 2,371,361  
 
EMEA:
GAAP revenue $ 148,494 $ 96,473 $ 465,145 $ 358,534
TAC (52,197 ) (17,399 ) (167,357 ) (97,248 )
Revenue ex-TAC $ 96,297   $ 79,074   $ 297,788   $ 261,286  
 
Asia Pacific:
GAAP revenue $ 276,931 $ 261,528 $ 776,692 $ 780,710
TAC (55,301 ) (54,141 ) (165,523 ) (166,543 )
Revenue ex-TAC $ 221,630   $ 207,387   $ 611,169   $ 614,167  
       
Total revenue ex-TAC $ 1,071,674   $ 1,088,903   $ 3,212,128   $ 3,246,814  
 
Direct costs by segment (2) :
Americas $ 174,697 $ 189,345 $ 508,637 $ 550,080
EMEA 42,761 39,167 124,135 120,665
Asia Pacific 61,006 56,329 170,057 164,068
Global operating costs (3) 415,507 396,269 1,224,169 1,228,686
Restructuring charges, net (2,721 ) 24,727 8,091 159,536
Depreciation and amortization 152,223 169,511 474,034 480,498
Stock-based compensation expense 50,947   61,366   145,111   166,903  
Income from operations $ 177,254   $ 152,189   $ 557,894   $ 376,378  
 
Reconciliation of cash flow from operating activities to free cash flow:
Cash flow from operating activities $ 356,166 $ 1,046,308 $ 892,472 $ 1,618,321
Acquisition of property and equipment, net (123,942 ) (139,865 ) (463,006 ) (355,787 )
Dividends received from equity investees - - (75,391 ) (83,648 )
Excess tax benefits from stock-based awards 14,490   13,981   44,715   30,751  

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.

(2)

Direct costs for each segment include cost of revenue (excluding TAC) and other operating expenses that are directly attributable to the segment such as employee compensation expense (excluding stock-based compensation expense), local sales and marketing expenses, and facilities expenses. Beginning in 2012, marketing and customer advocacy costs are managed locally and included as direct costs for each segment. Prior period amounts have been revised to conform to the current presentation.

(3)

Global operating costs include product development, service engineering and operations, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment. Prior to 2012, marketing and customer advocacy costs were managed on a global basis and included as global operating costs. Prior period amounts have been revised to conform to the current presentation.

Yahoo! Inc.            
GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
                   

Three Months Ended

 

September 30,

 
  2011  

 

2012  
 
GAAP Income from operations $ 177,254 $ 152,189
 
(a) Restructuring charges, net (2,721 ) 24,727
   
Non-GAAP Income from operations $ 174,533   $ 176,916  
 
 
GAAP Net income attributable to Yahoo! Inc. $ 293,291 $ 3,160,238
 
(a) Restructuring charges, net (2,721 ) 24,727
 
(b) Gain related to sale of Alibaba shares - (4,603,322 )
 
(c) To adjust the provision for income taxes to exclude the tax impact of items (a) and (b) above for the three months ended September 30, 2011 and 2012 865 1,839,035
(d) Non-cash gain related to the dilution of the Company's ownership interest in Alibaba Group, which is included in earnings in equity interests (25,083 ) -
   
Non-GAAP Net income $ 266,352   $ 420,678  
 
GAAP Net income attributable to Yahoo! Inc. common stockholders per share - diluted $ 0.23   $ 2.64  
 
Non-GAAP Net income per share - diluted $ 0.21   $ 0.35  
 
Shares used in per share calculation - diluted 1,259,576   1,195,085  
 
 
Nine Months Ended
  September 30,  
  2011     2012  
 
GAAP Income from operations $ 557,894 $ 376,378
 
(a) Restructuring charges, net 8,091 159,536
   
Non-GAAP Income from operations $ 565,985   $ 535,914  
 
 
GAAP Net income attributable to Yahoo! Inc. $ 753,255 $ 3,673,212
 
(a) Restructuring charges, net 8,091 159,536
 
(b) Deal-related expenses (4) - 6,500
 
(c) Gain related to sale of Alibaba shares - (4,603,322 )
 
(d) To adjust the provision for income taxes to exclude the tax impact of items (a) - (c) above for the nine months ended September 30, 2011 and 2012 (2,572 ) 1,801,314
 
 
(e) Non-cash gain related to the dilution of the Company's ownership interest in Alibaba Group, which is included in earnings in equity interests (25,083 ) -
   
Non-GAAP Net income $ 733,691   $ 1,037,240  
 
GAAP Net income attributable to Yahoo! Inc. common stockholders per share - diluted $ 0.58   $ 3.02  
 
Non-GAAP Net income per share - diluted (5) $ 0.56   $ 0.85  
 
Shares used in per share calculation - diluted 1,296,040   1,214,430  
 

(4)

 

Deal-related expenses relate to, among other matters, the agreement Yahoo! entered into with Alibaba regarding Yahoo!’s stake in Alibaba.

(5)

The impact of outstanding stock awards of entities in which the Company holds equity interests that are accounted for using the equity method reduced the Company's non-GAAP diluted earnings per share by $0.01 for the nine months ended September 30, 2011.





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