YHOO Condensed Financial Documents

Table of Contents Page Condensed Financial Information 1 Item I. Income Statement (GAAP) & Key Measures (Non-GAAP) I-1) Income Statement (GAAP) I-2) Key Financial and Operational Measures (Non-GAAP) I-3) Reconciliation of GAAP Net Income/(Loss) and GAAP Net Income/(Loss) Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share Cash Flow Statement (GAAP) & Free Cash Flow (Non-GAAP) Balance Sheet (GAAP) Segment Information, Financial Measures, and Reconciliations to GAAP Notes to Condensed Financial Information 2 3 4 5 6 7 8 Item II. Item III. Item IV. Item V. 1 Yahoo! Inc. I-1) Condensed Income Statement (GAAP) (unaudited, in thousands, except per share amounts) Quarterly Data Q1'08 Revenues Cost of revenues Gross profit Operating expenses: Sales & marketing Product development General & administrative Amortization of intangibles Restructuring charges, net Goodwill impairment charge Total operating expenses Income/(loss) from operations (1) Other income, net (2) Income/(loss) before income taxes and earnings in equity interests Provision for income taxes (3) Earnings in equity interests Net income/(loss) Net loss/(income) attributable to noncontrolling interests Net income/(loss) attributable to Yahoo! Inc. Net income/(loss) attributable to Yahoo! Inc. common stockholders per share - basic Net income/(loss) attributable to Yahoo! Inc. common stockholders per share - diluted (4) $ $ $ $ 1,817,602 $ 755,083 1,062,519 Q2'08 1,798,085 $ 765,911 1,032,174 Q3'08 1,786,426 $ 772,277 1,014,149 Q4'08 1,806,389 730,091 1,076,298 $ Q1'09 1,580,042 $ 700,737 879,305 Q2'09 1,572,897 $ 712,453 860,444 Q3'09 1,575,399 708,898 866,501 $ Annual Data FY'07 6,969,274 $ 2,838,758 4,130,516 FY'08 7,208,502 3,023,362 4,185,140 424,591 305,606 171,080 23,740 16,885 941,902 120,617 14,665 404,899 314,719 188,811 23,224 931,653 100,521 24,583 396,982 323,172 199,593 24,228 943,975 70,174 8,881 336,841 278,290 145,652 16,358 89,969 487,537 1,354,647 (278,349) 25,621 321,112 306,043 136,997 9,667 4,801 778,620 100,685 4,960 280,386 291,398 138,652 9,253 65,002 784,691 75,753 72,010 286,382 306,696 155,421 9,814 16,689 775,002 91,499 105,390 1,610,357 1,084,238 633,431 107,077 3,435,103 695,413 118,771 1,563,313 1,221,787 705,136 87,550 106,854 487,537 4,172,177 12,963 73,750 135,282 (53,299) 454,782 536,765 $ 75 $ 125,104 (47,656) 54,927 132,375 $ (1,214) $ 131,161 $ 79,055 (50,577) 27,762 56,240 $ (1,892) $ 54,348 $ (252,728) (107,474) 59,508 (300,694) (2,734) (303,428) $ $ $ 105,645 (35,884) 48,934 118,695 $ (1,137) $ 117,558 $ 147,763 (68,879) 64,156 143,040 $ (1,653) $ 141,387 $ 196,889 (77,727) 68,654 187,816 (1,723) 186,093 $ $ $ 814,184 (322,868) 150,689 642,005 $ (2,850) $ 639,155 $ 86,713 (259,006) 596,979 424,686 (5,765) 418,921 536,840 $ $ 0.40 $ 0.10 $ 0.04 $ (0.22) $ 0.08 $ 0.10 $ 0.13 $ 0.48 $ 0.31 $ 0.37 $ 0.09 $ 0.04 $ (0.22) $ 0.08 $ 0.10 $ 0.13 $ 0.47 $ 0.29 Basic shares Diluted shares Stock-based compensation expense was allocated as follows: Cost of revenues Sales & marketing Product development General & administrative Restructuring expense reversals 1,333,730 1,393,080 1,372,629 1,397,839 1,383,786 1,397,522 1,386,530 1,396,545 1,391,526 1,406,510 1,394,783 1,414,295 1,401,961 1,424,854 1,338,986 1,366,264 1,369,169 1,390,924 $ $ $ $ $ 3,280 65,538 48,082 20,389 (12,284) $ $ $ $ $ 3,549 56,306 46,442 16,871 - $ $ $ $ $ 4,283 51,060 55,372 21,884 - $ $ $ $ $ 2,701 9,922 28,195 3,969 (17,952) $ $ $ $ $ 3,579 49,897 54,278 18,966 - $ $ $ $ $ 2,663 35,651 51,647 22,565 (7,600) $ $ $ $ $ 2,688 30,150 57,964 23,628 - $ $ $ $ $ 10,628 246,472 218,207 97,120 - $ $ $ $ $ 13,813 182,826 178,091 63,113 (30,236) Supplemental information: Amortization of intangibles included in cost of revenues Amortization of intangibles included in operating expenses Total Amortization of intangibles $ $ 46,214 $ 23,740 69,954 $ 54,220 $ 23,224 77,444 $ 54,380 $ 24,228 78,608 $ 38,857 16,358 55,215 $ $ 37,040 $ 9,667 46,707 $ 49,851 $ 9,253 59,104 $ 29,394 9,814 39,208 $ $ 142,752 $ 107,077 249,829 $ 193,671 87,550 281,221 (1) Income from operations for the first quarter of 2008 includes incremental costs of $14 million incurred for advisors related to Microsoft's unsolicited proposal, other strategic alternatives, and related litigation defense costs. Income/(loss) from operations for Q2'08, Q3'08 and Q4'08 includes incremental costs of $22 million, $37 million and $7 million, respectively, incurred for outside advisors related to Microsoft's proposals to acquire all or a part of the company, other strategic alternatives, including the Google agreement, the proxy contest and related litigation defense costs (collectively, the "strategic alternatives and related matters"). Q2'09 includes a $67 million pretax gain on the sale of the Company's investment in Gmarket. Q3'09 includes a $98 million pretax gain on the sale of the Company's direct investment in Alibaba.com. (2) (3) (4) Q1'08 includes Yahoo!'s non-cash gain of $401 million related to Alibaba Group's initial public offering of Alibaba.com, net of tax. Q3'08 includes Yahoo!'s non-cash loss of $30 million related to the impairment of our direct investment in Alibaba.com, net of tax. 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 diluted earnings per share by $0.02 for Q1'08 and by $0.01 for FY'08. 2 Yahoo! Inc. I-2) Key Financial and Operational Measures (Non-GAAP) (5) (unaudited, in thousands, except headcount) Quarterly Data Q1'08 Revenues for groups of similar services: Marketing services: (6) Owned and Operated sites (7) Affiliate sites Marketing services Fees Total revenues Revenues by segment: United States International Total revenues Revenues excluding traffic acquisition costs ("TAC") by segment: Revenues excluding TAC - United States Revenues excluding TAC - International Total revenues excluding TAC Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) by (8) segment United States International Total operating income/(loss) before depreciation, amortization, and stock-based compensation expense Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Annual Data FY'07 FY'08 $ $ $ $ 965,640 $ 606,804 1,572,444 245,158 1,817,602 $ 1,305,340 $ 512,261 1,817,601 $ 1,015,688 $ 571,268 1,586,956 211,129 1,798,085 $ 1,262,191 $ 535,894 1,798,085 $ 1,002,032 $ 560,690 1,562,722 223,704 1,786,426 $ 1,276,766 $ 509,660 1,786,426 $ 1,062,641 531,443 1,594,084 212,305 1,806,389 1,338,011 468,378 1,806,389 $ $ $ $ 871,904 $ 511,277 1,383,181 196,861 1,580,042 $ 1,187,930 $ 392,112 1,580,042 $ 858,160 $ 519,690 1,377,850 195,047 1,572,897 $ 1,152,393 $ 420,504 1,572,897 $ 851,382 525,966 1,377,348 198,051 1,575,399 1,143,173 432,226 1,575,399 $ $ $ $ 3,669,724 $ 2,418,515 6,088,239 881,035 6,969,274 $ 4,724,426 $ 2,244,848 6,969,274 $ 4,046,001 2,270,205 6,316,206 892,296 7,208,502 5,182,308 2,026,193 7,208,501 $ $ 1,027,925 $ 324,133 1,352,058 $ 991,316 $ 354,653 1,345,969 $ 990,369 $ 334,943 1,325,312 $ 1,047,001 328,247 1,375,248 $ $ 897,787 $ 258,460 1,156,247 $ 861,857 $ 274,489 1,136,346 $ 848,459 282,969 1,131,428 $ $ 3,835,806 $ 1,276,768 5,112,573 $ 4,056,611 1,341,976 5,398,587 $ 313,093 $ 120,040 433,133 $ 295,537 $ 131,509 427,046 $ 288,248 $ 122,130 410,378 $ 308,383 (368,337) (59,954) $ 292,732 $ 116,246 408,978 $ 268,205 $ 117,239 385,444 $ 259,029 125,439 384,468 $ 1,433,617 $ 493,418 1,927,035 $ 1,205,261 5,342 1,210,603 $ $ $ Free cash flow (9) Operating metrics Worldwide headcount (5) $ 646,512 $ 230,999 $ 215,344 $ 218,729 $ 213,995 $ 266,034 $ 257,696 $ 1,336,894 $ 1,311,584 13,800 14,300 15,200 13,600 13,500 13,000 13,200 14,300 13,600 This presentation is not prepared under a comprehensive set of accounting rules or principles such as GAAP. See Notes to Condensed Financial Information for further explanation of key non-GAAP financial measures. Refers to Yahoo!'s owned and operated online properties and services. Refers to Yahoo!'s distribution network of third-party entities who have integrated Yahoo!'s advertising offerings into their websites or their other offerings. (6) (7) Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) for Q1'08 includes a pre-tax cash charge of $29 million for severance pay expenses and related cash expenditures related to a strategic workforce realignment the Company implemented in the quarter, as well as incremental costs of $14 million incurred for outside advisors related to Microsoft's unsolicited proposal, other strategic alternatives, and related litigation defense costs. Operating cash flow for Q2'08, Q3'08 and Q4'08 includes incremental costs of $22 million, $37 million and $7 million, respectively, incurred for outside advisors related to strategic alternatives and related matters. Operating cash flow for Q4'08 also includes a goodwill impairment charge of $488 million related to our International segment and restructuring charges of $108 million for severance, facilities and other restructuring costs. Operating cash flow for Q1'09, Q2'09 and Q3'09 includes cash restructuring charges of $5 million, $66 million and $15 million, respectively. (9) Free cash flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based compensation), less net capital expenditures and dividends received. Q1’08 and FY'08 free cash flow includes a $350 million one-time payment from AT&T Inc. FY'07 free cash flow includes a $52 million one-time payment from Rogers Communications. (8) 3 Yahoo! Inc. I-3) Reconciliation of GAAP Net Income/(Loss) and GAAP Net Income/(Loss) Per Share to Non-GAAP Net Income and Non-GAAP Net Income Per Share (5) (unaudited, in thousands, except per share amounts) Quarterly Data Q1'08 GAAP Net income/(loss) attributable to Yahoo! Inc. (10) Annual Data Q1'09 $ 117,558 $ Q2'09 141,387 $ Q3'09 186,093 $ FY'07 639,155 $ FY'08 418,921 Q2'08 $ 131,161 $ Q3'08 54,348 $ Q4'08 (303,428) $ 536,840 (a) (b) Stock-based compensation expense Non-cash gain arising from increased dilution of our ownership in Alibaba, resulting in the recognition of a further gain on the sale of Yahoo! China Incremental costs for advisors related to strategic alternatives and related matters. 137,289 - 123,168 - 132,599 - 44,787 - 126,720 - 112,526 - 114,430 - 572,427 (8,066) 437,843 - (c) 13,856 22,300 36,555 6,769 - - - - 79,480 (d) Restructuring charges, net. Q1 2008 charge included $29 million in pretax cash charges, offset by $12 million in related stock-based compensation expense reversals; Q4 2008 charge included $108 million in charges, offset by $18 million in related stock-based compensation expense reversals; Q2 2009 charge included $73 million in charges, offset by $8 million in related stock-based compensation expense reversals. Gain on sale of Gmarket investment Gain on sale of the Company's direct investment in Alibaba.com Goodwill impairment charge Yahoo!'s non-cash gain related to Alibaba Group's initial public offering of Alibaba.com, net of tax, which is included in earnings in equity interests Yahoo!'s non-cash loss related to the impairment of our direct investment in Alibaba.com, net of tax, which is included in earnings in equity interests To adjust the provision for income taxes to reflect the tax impact of items (a) - (g) To adjust the provision for income taxes to reflect the applicable effective tax rates for the period 16,885 - - 89,969 4,801 65,002 16,689 - 106,854 (e) (f) (g) (h) (401,090) - - 487,537 - - (66,684) - (98,167) - - 487,537 (401,090) (i) - - 30,188 - - - - - 30,188 (j) (45,036) (38,385) (46,122) (49,073) (33,337) (25,646) 6,736 (50,592) (178,616) (k) (12,678) (12,989) 5,855 18,808 (9,518) 2,720 (12,900) (179,072) (1,004) Non-GAAP Net income $ 246,066 $ 225,255 $ 213,423 $ 295,369 $ 206,224 $ 229,305 $ 212,881 $ 973,852 $ 980,113 GAAP Net income/(loss) attributable to Yahoo! Inc. common stockholders per share - basic $ 0.40 $ 0.10 $ 0.04 $ (0.22) $ 0.08 $ 0.10 $ 0.13 $ 0.48 $ 0.31 GAAP Net income/(loss) attributable to Yahoo! Inc. common stockholders per share - diluted (4) $ 0.37 $ 0.09 $ 0.04 $ (0.22) $ 0.08 $ 0.10 $ 0.13 $ 0.47 $ 0.29 Non-GAAP Net income per share - basic Non-GAAP Net income per share - diluted Basic shares Diluted shares (11) $ $ 0.18 0.18 1,333,730 1,393,880 $ $ 0.16 0.16 1,372,629 1,397,839 $ $ 0.15 0.15 1,383,786 1,397,522 $ $ 0.21 0.21 1,386,530 1,396,545 $ $ 0.15 0.15 1,391,526 1,406,510 $ $ 0.16 0.16 1,394,783 1,414,295 $ $ 0.15 0.15 1,401,961 1,424,854 $ $ 0.73 0.71 1,338,986 1,366,264 $ $ 0.72 0.70 1,369,169 1,390,924 (4) 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 diluted earnings per share by $0.02 for Q1'08 and by $0.01 for FY'08. This presentation is not prepared under a comprehensive set of accounting rules or principles such as GAAP. See Notes to Condensed Financial Information for further explanation of key non-GAAP financial measures. During Q4'08, the Company recorded a reversal to stock-based compensation expense of $51 million pre-tax to reflect an increase in estimated forfeiture rates related to equity awards. Diluted shares for Q4'08 is presented for purposes of non-GAAP net income per share and differs from the comparable figure for GAAP purposes because the Company incurred a GAAP loss in Q4'08. (5) (10) (11) 4 Yahoo! Inc. II) Condensed Cash Flow Statement (GAAP) & Free Cash Flow (Non-GAAP) (5) (unaudited, in thousands) Quarterly Data Q1'08 GAAP Cash Flow Statement Cash flows from operating activities Net income/(loss) Adjustments to reconcile net income to net cash provided by operating activities Depreciation Amortization of intangibles Stock-based compensation expense, net Non-cash restructuring charges Goodwill impairment charges Tax benefits from stock-based awards Deferred income taxes Excess tax benefits from stock-based awards Earnings in equity interests Dividends received from equity investee (Gains)/losses from sales of investments, assets, and other, net Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net Prepaid expenses and other Accounts payable Accrued expenses and other liabilities Deferred revenue Net cash provided by operating activities Cash flows from investing activities Acquisition of property and equipment, net Purchases of marketable debt securities Proceeds from sales of marketable debt securities Proceeds from maturities of marketable debt securities Proceeds from sales of marketable equity securities Acquisitions, net of cash acquired Purchases of intangible assets Other investing activities, net Net cash provided by (used in) investing activities Cash flows from financing activities Proceeds from issuance of common stock, net Repurchases of common stock Structured stock repurchases, net Excess tax benefits from stock-based awards Tax withholdings related to net share settlements of restricted stock awards and restricted stock units Other financing activities, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Free Cash Flow and Reconciliation to Cash Flows from Operating Activities: Cash flows from operating activities Acquisition of property and equipment, net Dividends received Excess tax benefits from stock-based awards Free cash flow (9) Annual Data Q1'09 Q2'09 Q3'09 FY'07 FY'08 Q2'08 Q3'08 Q4'08 $ 536,765 117,557 69,954 125,005 29,636 (454,782) 5,877 27,180 (8,307) (44,343) 46,235 335,528 786,305 $ 132,375 125,913 77,444 123,168 31,133 7,891 (54,927) 18,942 (512) (3,544) 2,660 4,891 8,381 (47,977) 425,838 $ 56,240 128,997 78,608 132,599 21,066 4,973 (35,481) (27,762) 6,275 22,786 (35,934) 3,856 46,546 (55,678) 347,091 $ (300,694) 136,345 55,215 26,835 7,925 487,537 65,517 (77,824) (89,633) (59,508) (21,987) (108,504) 22,093 11,756 223,868 (57,934) 321,007 $ 118,695 134,866 46,707 126,720 (558) (2,705) 5,826 (22,127) (48,934) (3,141) 136,535 2,267 (29,689) (170,480) (31,633) 262,349 $ 143,040 138,636 59,104 104,926 7,025 19,241 18,915 (45,059) (64,156) 26,145 (69,102) 26,727 2,351 (39,932) 31,102 (17,169) 341,794 $ 187,816 138,541 39,208 114,430 790 (30,230) 18,939 (2,942) (68,654) 1,483 (94,727) 9,180 (3,894) 16,585 56,841 (28,226) 355,140 $ 642,005 409,366 249,829 572,427 76,138 (212,742) (35,427) (150,689) 15,156 8,060 (88,738) 132,437 45,101 170,410 85,566 1,918,899 $ 424,686 508,812 281,221 407,607 7,925 487,537 117,716 (35,324) (125,114) (596,979) 18,942 (10,347) (62,082) (19,488) (23,840) 325,030 173,939 1,880,241 (139,793) (32,757) 129,992 246,550 (166,289) (8,858) (10,435) 18,410 (175,897) (856,710) 69,309 124,427 (13,476) (42,302) 2,714 (891,935) (167,228) (392,246) 48,829 356,913 (29,349) (15,824) (112) (199,017) (191,911) (1,035,291) 37,623 935,679 (4,326) 18,985 (239,241) (70,481) (1,241,194) 55,018 1,045,691 (5,365) (216,331) (94,674) (932,412) 1,141 394,146 119,987 (16,386) (86) (528,284) (98,903) (1,357,160) 27,005 666,183 145,207 (17,773) (7,063) 3,738 638,766 (602,276) (1,105,043) 571,199 1,672,521 (973,577) (110,378) (24,948) (572,502) (674,829) (2,317,004) 285,753 1,663,569 (209,114) (71,310) 11,152 (1,311,783) 126,570 (79,236) (52,493) (5,159) 27,719 827,275 1,513,930 $ 2,341,205 190,875 (4,119) (74) 186,682 (10,420) (289,835) 2,341,205 $ 2,051,370 13,958 35,481 (8,456) 40,983 (96,677) 92,380 2,051,370 $ 2,143,750 31,951 89,633 (11,684) 109,900 (43,120) 148,546 2,143,750 $ 2,292,296 3,932 22,127 (10,339) 15,720 (35,525) 26,213 2,292,296 $ 2,318,509 67,120 45,059 (16,279) 95,900 56,167 (34,423) 2,318,509 $ 2,284,086 3,433 (90,778) 2,942 (19,371) (103,774) 37,404 (349,996) 2,284,086 $ 1,934,090 375,066 (1,583,920) (250,000) 35,427 (6,456) (12,125) (1,442,008) 39,670 (55,941) 1,569,871 $ 1,513,930 363,354 (79,236) 125,114 (76,752) (74) 332,406 (122,498) 778,366 1,513,930 $ 2,292,296 $ 786,305 $ (139,793) 646,512 $ 425,838 $ (175,897) (18,942) 230,999 $ 347,091 $ (167,228) 35,481 215,344 $ 321,007 (191,911) 89,633 218,729 $ 262,349 $ (70,481) 22,127 213,995 $ 341,794 $ (94,674) (26,145) 45,059 266,034 $ 355,140 (98,903) (1,483) 2,942 257,696 $ 1,918,899 $ 1,880,241 (602,276) (674,829) (15,156) (18,942) 35,427 125,114 $ 1,336,894 $ 1,311,584 $ $ (5) This presentation is not prepared under a comprehensive set of accounting rules or principles such as GAAP. See Notes to Condensed Financial Information for further explanation of key non-GAAP financial measures. Free cash flow (FCF) is a non-GAAP financial measure defined as cash flow from operating activities (adjusted to include excess tax benefits from stock-based compensation), less net capital expenditures and dividends received. Q1’08 and FY'08 free cash flow includes a $350 million one-time payment from AT&T Inc. FY'07 free cash flow includes a $52 million one-time payment from Rogers Communications. (9) 5 Yahoo! Inc. III) Condensed Balance Sheet (GAAP) (unaudited, in thousands) Quarterly Data Q1'08 ASSETS Current assets: Cash and cash equivalents Short-term marketable debt securities Accounts receivable, net Prepaid expenses and other current assets Total current assets Long-term marketable debt securities Property and equipment, net Goodwill Intangible assets, net Other long-term assets Investments in equity interests Total assets LIABILITIES AND EQUITY Current liabilities: Accounts payable Accrued expenses and other current liabilities Deferred revenue Short-term debt Total current liabilities Long-term deferred revenue Long-term debt Capital lease and other long-term liabilities Deferred and other long-term tax liabilities, net Total Liabilities Total Yahoo! Inc. stockholders' equity Noncontrolling interests Total equity Total liabilities and equity $ 134,133 1,053,271 495,999 1,683,403 307,191 582,863 25,693 314,452 2,913,602 10,500,023 12,179 10,512,202 $ 13,425,803 $ 136,754 1,062,918 478,352 1,678,024 276,099 23,004 332,428 2,309,555 11,666,699 13,393 11,680,092 $ 13,989,647 $ 150,990 1,076,991 446,565 1,674,546 246,263 63,008 307,553 2,291,370 11,601,825 15,285 11,617,110 $ 13,908,480 $ $ 151,897 1,139,894 413,224 1,705,015 218,438 77,062 420,372 2,420,887 11,250,942 18,019 11,268,961 13,689,848 $ 115,763 958,468 405,616 1,479,847 192,332 70,909 401,615 2,144,703 11,572,102 19,156 11,591,258 $ 13,735,961 $ 81,803 964,422 416,659 1,462,884 167,685 87,197 438,014 2,155,780 11,899,641 20,808 11,920,449 $ 14,076,229 $ 102,122 990,680 413,412 1,506,214 144,471 83,612 503,448 2,237,745 12,159,677 22,532 12,182,209 $ 14,419,954 $ 176,162 1,009,898 368,470 740,353 2,294,883 95,129 28,086 260,993 2,679,091 9,538,209 12,254 9,550,463 $ 12,229,554 $ 151,897 1,139,894 413,224 1,705,015 218,438 77,062 420,372 2,420,887 11,250,942 18,019 11,268,961 $ 13,689,848 $ 2,341,205 267,129 1,039,957 190,878 3,839,169 239,428 1,363,475 4,156,598 651,774 221,594 2,953,765 $ 13,425,803 $ 2,051,370 1,019,641 1,041,874 191,445 4,304,330 148,313 1,415,801 4,150,966 615,597 216,042 3,138,598 $ 13,989,647 $ 2,143,750 1,070,350 992,936 189,785 4,396,821 85,128 1,490,655 4,038,445 556,466 226,113 3,114,852 $ 13,908,480 $ $ 2,292,296 1,159,691 1,060,450 233,061 4,745,498 69,986 1,536,181 3,440,889 485,860 233,989 3,177,445 13,689,848 $ 2,318,509 1,127,141 912,987 236,420 4,595,057 245,445 1,469,721 3,405,584 436,558 210,785 3,372,811 $ 13,735,961 $ 2,284,086 1,594,226 907,276 243,263 5,028,851 319,137 1,430,377 3,461,604 396,128 131,730 3,308,402 $ 14,076,229 $ 1,934,090 1,967,508 907,029 268,459 5,077,086 601,469 1,394,558 3,500,920 365,405 127,476 3,353,040 $ 14,419,954 $ 1,513,930 487,544 1,055,532 180,529 3,237,535 361,998 1,331,632 4,002,030 611,497 503,945 2,180,917 $ 12,229,554 $ 2,292,296 1,159,691 1,060,450 233,061 4,745,498 69,986 1,536,181 3,440,889 485,860 233,989 3,177,445 $ 13,689,848 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Annual Data FY '07 FY '08 6 Yahoo! Inc. IV) Segment Information, Financial Measures, and Reconciliations to GAAP (5) (unaudited, in thousands) Quarterly Data Q1'08 Revenues excluding TAC reconciliation: GAAP Revenue TAC Revenues excluding TAC By segment: United States: GAAP Revenue TAC Revenues excluding TAC - United States International: GAAP Revenue TAC Revenues excluding TAC - International Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Annual Data FY'07 FY'08 $ $ 1,817,602 $ (465,544) 1,352,058 $ 1,798,085 $ (452,116) 1,345,969 $ 1,786,426 $ (461,114) 1,325,312 $ 1,806,389 (431,141) 1,375,248 $ 1,580,042 $ (423,795) 1,156,247 1,572,897 $ (436,551) 1,136,346 1,575,399 (443,971) 1,131,428 $ $ 6,969,274 $ 7,208,502 (1,856,701) (1,809,915) 5,112,573 $ 5,398,587 $ $ 1,305,340 $ (277,416) 1,027,924 $ 1,262,191 $ (270,875) 991,316 $ 1,276,766 $ (286,397) 990,369 $ 1,338,011 (291,010) 1,047,001 $ $ 1,187,930 $ (290,143) 897,787 $ 1,152,393 $ (290,536) 861,857 $ 1,143,173 (294,714) 848,459 $ $ 4,724,426 $ 5,182,308 (888,621) (1,125,698) 3,835,805 $ 4,056,610 $ $ 512,261 $ (188,128) 324,133 $ 535,894 $ (181,241) 354,653 $ 509,660 $ (174,717) 334,943 $ 468,378 (140,131) 328,247 $ $ 392,112 $ (133,652) 258,460 $ 420,504 $ (146,015) 274,489 $ 432,226 (149,257) 282,969 $ $ 2,244,848 $ (968,080) 1,276,768 $ 2,026,193 (684,217) 1,341,976 Operating income/(loss) to operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) reconciliation Operating income/(loss) Depreciation and amortization Stock-based compensation expense(10) Operating income/(loss) before depreciation, amortization, and stock-based compensation expense $ 120,617 187,511 125,005 $ 433,133 $ $ 100,521 203,357 123,168 427,046 $ $ 70,174 207,605 132,599 410,378 $ $ (278,349) 191,560 26,835 (59,954) $ $ (8) : $ 75,753 204,765 104,926 $ 385,444 $ $ 91,499 178,539 114,430 384,468 $ $ 695,413 659,195 572,427 1,927,035 $ $ 12,963 790,033 407,607 1,210,603 100,685 181,573 126,720 408,978 Segment operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) reconciliation Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow) - United States Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) - International Total operating income/(loss) before depreciation, amortization, and stock-based compensation expense By segment: United States: Operating income/(loss) Depreciation and amortization Stock-based compensation expense(10) Operating income before depreciation, amortization, and stock-based compensation expense (or operating cash flow) - United States $ 313,093 120,040 $ 433,133 $ $ 295,537 131,509 427,046 $ $ 288,248 122,130 410,378 $ $ (8) : $ 292,732 116,246 $ 408,978 $ $ 268,205 117,239 385,444 $ $ 259,029 125,439 384,468 $ $ 1,433,617 493,418 1,927,035 $ $ 1,205,261 5,342 1,210,603 308,383 (368,337) (59,954) $ 47,095 153,183 112,815 $ 19,380 168,457 107,700 $ 2,549 171,446 114,253 $ 114,988 164,449 28,946 $ 20,827 159,851 112,054 $ (8,553) $ 182,810 93,948 4,214 152,489 102,326 $ 378,111 536,151 516,658 $ 184,012 657,535 363,714 $ 313,093 $ 295,537 $ 288,248 $ 308,383 $ 292,732 $ 268,205 $ 259,029 $ 1,433,617 $ 1,205,261 International: Operating income/(loss) Depreciation and amortization Stock-based compensation expense Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) - International (5) $ 73,522 34,328 12,190 $ 81,141 34,900 15,468 $ 67,625 36,159 18,346 $ (393,337) 27,111 (2,111) $ 79,858 21,722 14,666 $ 84,306 21,955 10,978 $ 87,285 26,050 12,104 $ 317,302 123,044 55,769 $ (171,049) 132,498 43,893 $ 120,040 $ 131,509 $ 122,130 $ (368,337) $ 116,246 $ 117,239 $ 125,439 $ 493,418 $ 5,342 This presentation is not prepared under a comprehensive set of accounting rules or principles such as GAAP. See Notes to Condensed Financial Information for further explanation of key non-GAAP financial measures. (8) Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (or operating cash flow) for Q1'08 includes a pre-tax cash charge of $29 million for severance pay expenses and related cash expenditures related to a strategic workforce realignment the Company implemented in the quarter, as well as incremental costs of $14 million incurred for outside advisors related to Microsoft's unsolicited proposal, other strategic alternatives, and related litigation defense costs. Operating cash flow for Q2'08, Q3'08 and Q4'08 includes incremental costs of $22 million, $37 million and $7 million, respectively, incurred for outside advisors related to strategic alternatives and related matters. Operating cash flow for Q4'08 also includes a goodwill impairment charge of $488 million related to our International segment and restructuring charges of $108 million for severance and other restructuring costs. Operating cash flow for Q1'09, Q2'09, and Q3'09 includes cash restructuring charges of $5 million, $66 million and $15 million, respectively. (10) During Q4'08, the Company recorded a reversal to stock-based compensation expense of $51 million pre-tax to reflect an increase in estimated forfeiture rates related to equity awards. 7 V) Notes to Condensed Financial Information Non-GAAP financial measures The condensed financial information accompanying these notes includes the non-GAAP financial measures of revenues excluding traffic acquisition costs or TAC, operating income/(loss) before depreciation, amortization, and stock-based compensation expense (also referred to as operating cash flow), free cash flow, non-GAAP net income, and non-GAAP net income per share, which are reconciled to GAAP revenue, income/(loss) from operations, cash flow from operating activities, net income/(loss) attributable to Yahoo! Inc., and net income/(loss) attributable to Yahoo! Inc. common stockholders per share, respectively, which we believe are the most comparable GAAP measures. We use these non-GAAP financial measures for internal managerial purposes, when publicly providing our business outlook, and to facilitate period-to-period comparisons. We describe limitations specific to each non-GAAP financial measure below. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure or measures. Further, management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, GAAP revenues, income/(loss) from operations, cash flow from operating activities, net income/(loss) attributable to Yahoo! Inc., and net income/(loss) attributable to Yahoo! Inc. common stockholders per share, calculated in accordance with generally accepted accounting principles (“GAAP”). Revenues excluding TAC is defined as GAAP revenues less TAC. TAC consists of payments made to Affiliate sites that have integrated our advertising offerings into their website or their other offerings and payments made to companies that direct consumer and business traffic to the Yahoo! website. We present revenues excluding TAC: (1) to provide a metric for our investors to analyze and value our Company and (2) to provide investors one of the primary metrics used by the Company for evaluation and decision-making purposes. We provide revenues excluding TAC because we believe it is useful to investors in valuing our Company. One of the ways investors value companies is to apply a multiple to revenues. Since a significant portion of the GAAP revenues associated with our sponsored search offerings is paid to our Affiliate sites, we believe investors find it more meaningful to apply multiples to revenues excluding TAC to assess our value as this avoids “double counting” revenues that are paid to, and being reported by, our Affiliate sites. Further, management uses revenues excluding TAC for evaluating the performance of our business, making operating decisions, budgeting purposes, and as a factor in determining management compensation. A limitation of revenues excluding TAC is that it is a measure which we have defined for internal and investor purposes that may be unique to the Company, and therefore it may not enhance the comparability of our results to other companies in our industry who have similar business arrangements but address the impact of TAC differently. Management compensates for these limitations by also relying on the comparable GAAP financial measures of revenues, cost of revenues, and gross profit, each of which includes the impact of TAC. Operating income/(loss) before depreciation, amortization, and stock-based compensation expense (also referred to as operating cash flow) is defined as income/(loss) from operations before depreciation, amortization of intangible assets, and stock-based compensation expense (including the compensation of Terry Semel, who served as our chief executive officer through June 18, 2007 and whose compensation after June 1, 2006 consisted almost entirely of stock-based compensation). We consider this measure to be an important indicator of the operational strength of the Company. We exclude depreciation and amortization because while tangible and intangible assets support our businesses, we do not believe the related depreciation and amortization costs are directly attributable to the operating performance of our business. This measure is used by some investors when assessing the performance of our Company. In addition, because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, we believe excluding stock-based compensation expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on our operating income. We do not include depreciation, amortization, and stock-based compensation expense in our internal measures or in the measures used by the Company to formulate our business outlook presented with our quarterly financial information to investors. A limitation associated with the non-GAAP measure of operating income/(loss) before depreciation, amortization, and stock-based compensation expense is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. A further limitation associated with this measure is that it does not include stock-based compensation expense related to the Company’s workforce. Management compensates for these limitations by also relying on the comparable GAAP financial measure of income/(loss) from operations, which includes depreciation, amortization, and stock-based compensation expense. 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 compensation), less net capital expenditures and dividends received. We consider free cash flow to be a liquidity measure which provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet, and repurchasing stock. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company’s unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period. Non-GAAP net income is defined as net income/(loss) excluding certain gains, losses, expenses, and their related tax effects that we do not believe are indicative of our ongoing operating results and further adjusted to exclude stock-based compensation expense. In our calculation of non-GAAP net income and non-GAAP net income per share, we have excluded stock-based compensation expense and its related tax effects. 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 expense enhances the ability of management and investors to understand the impact of stock-based compensation expense on net income and net income per share. We also consider non-GAAP net income and non-GAAP net income per share to be profitability measures which facilitate the forecasting of our operating results for future periods and allow for the comparison of our results to historical periods. A limitation of non-GAAP net income and non-GAAP net income per share is that they do not include all items that impact our net income/(loss) and net income/(loss) per share for the period. Management compensates for this limitation by also relying on the comparable GAAP financial measures of net income/(loss) attributable to Yahoo! Inc. and net income/(loss) attributable to Yahoo! Inc. common stockholders per share, 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 share.