Yahoo! Reports Fourth Quarter and Full Year 2012 Results

  Yahoo! Reports Fourth Quarter and Full Year 2012 Results

Business Wire

SUNNYVALE, Calif. -- January 28, 2013

Yahoo! Inc. (NASDAQ: YHOO) today reported results for the fourth quarter and
full year ended December 31, 2012.

                                          Q4 2012          Full Year 2012
GAAP revenue                                $1,346 million     $4,987 million
Revenue ex-TAC                              $1,221 million     $4,468 million
GAAP income from operations                 $190 million       $566 million
Non-GAAP income from operations             $283 million       $825 million
GAAP net earnings per diluted share         $0.23              $3.28
Non-GAAP net earnings per diluted share     $0.32              $1.17

“I'm proud of Yahoo!'s 2012 and fourth quarter results. In 2012,
Yahoo!exhibited revenue growth for the first time in 4 years, with revenue up
2 percent year-over-year,” said Yahoo! CEO Marissa Mayer. "During the quarter
we made progress by growing our executive team, signing key partnerships
including those with NBC Sports and CBSTelevision, and launching terrific
mobile experiences for Yahoo! Mail andFlickr. At the same time, we achieved
tremendous internaltransformation in the culture, energy and execution of the
Company."

GAAP revenue was $1,346 million for the fourth quarter of 2012, a 2 percent
increase from the fourth quarter of 2011. Revenue excluding traffic
acquisition costs (“revenue ex-TAC”) was $1,221 million for the fourth quarter
of 2012, a 4 percent increase compared to the fourth quarter of 2011. GAAP
revenue was $4,987 million for the full year of 2012, flat compared to the
prior year. Revenue ex-TAC was $4,468 million for the full year of 2012, a 2
percent increase from the prior year.

Adjusted EBITDA for the fourth quarter of 2012 was $509 million, an 8 percent
increase from the same period of 2011. Adjusted EBITDA was $1,699 million for
the full year of 2012, a 3 percent increase from the prior year.

GAAP income from operations decreased 22 percent to $190 million in the fourth
quarter of 2012, compared to $242 million in the fourth quarter of 2011.
Non-GAAP income from operations was $283 million in the fourth quarter of 2012
compared to $259 million in the fourth quarter of 2011.GAAP income from
operations for the full year of 2012 was $566 million, compared to $800
million for the prior year. Non-GAAP income from operations was $825 million
in both years.

GAAP net earnings for the fourth quarter of 2012 was $272 million, an 8
percent decrease from the same period of 2011. Non-GAAP net earnings for the
fourth quarter of 2012 was $370 million, a 20 percent increase from the same
period of 2011. GAAP net earnings for the full year of 2012 was $3,945
million, compared to $1,049 million for the prior year. For the full year of
2012, GAAP net earnings included a net gain of $2,755 million related to the
sale of Alibaba shares. Non-GAAP net earnings for the full year of 2012 was
$1,407 million, a 35 percent increase from the prior year.

GAAP net earnings per diluted share was $0.23 in the fourth quarter of 2012,
compared to $0.24 in the fourth quarter of 2011. Non-GAAP net earnings per
diluted share was $0.32 in the fourth quarter of 2012, compared to $0.25 in
the fourth quarter of 2011. GAAP net earnings per diluted share was $3.28 for
the full year of 2012, compared to $0.82 for the prior year. For the full year
of 2012, GAAP net earnings included a net gain of $2,755 million, or $2.29 per
diluted share, related to the sale of Alibaba shares. Non-GAAP net earnings
per diluted share was $1.17 for the full year of 2012, compared to $0.81 for
the prior year.

Business Highlights

  *Yahoo! further strengthened its board of directors, appointing Max
    Levchin, a computer scientist, serial entrepreneur and angel investor with
    extensive experience building enduring Internet companies.
  *The Company made significant improvements to two of its core products,
    Yahoo! Mail and Flickr. The new Yahoo! Mail is faster, easier to use and
    available across the Web and on Windows 8, iPhone/iPod touch and Android.
    Yahoo!’s redesigned Flickr app for iPhone and iPod touch makes it easier
    to capture, share and discover photos. The new app allows users to share
    photos by email, with the Flickr community or via Facebook, Twitter or
    Tumblr.
  *Yahoo! signed distribution and branding deals to strengthen two of its
    leading media properties.

       *Yahoo! Sports and NBC Sports announced a partnership to deliver news,
         fantasy games, and video coverage of sporting events – combining two
         of the most trusted names in sports.
       *Yahoo! and CBS Television Distribution launched omg! Insider, a
         multiplatform entertainment news series that combines the popularity
         of CBS Television Distribution’s The Insider with the online reach of
         omg!.

  *The Company also announced a deal with Wenner Media to further enhance the
    content and reach of omg! and Yahoo! Music by joining forces with the Us
    Weekly, Rolling Stone, and Men’s Journal franchises.
  *Yahoo! acquired mobile app developers Stamped and OnTheAir, accelerating
    the Company's efforts to build a world-class team of mobile engineers,
    product managers and designers.
  *Yahoo! expanded its partnership with Samsung, enabling Samsung SmartTV
    users to engage more with their favorite shows and commercials. With the
    touch of a remote, connected tablet or phone, Samsung SmartTV viewers who
    use Yahoo!’s Connected TV technologies, can easily access content or
    offers related to their favorite TV shows or commercials.

Fourth Quarter and Full Year 2012 Financial Highlights

Display

  *GAAP display revenue was $591 million for the fourth quarter of 2012, a 3
    percent decrease compared to $612 million for the fourth quarter of 2011.
    GAAP display revenue was $2,143 million for the full year of 2012, a 1
    percent decrease compared to $2,160 million for the prior year.
  *Display revenue ex-TAC was $520 million for the fourth quarter of 2012, a
    5 percent decrease compared to $546 million for the fourth quarter of
    2011. Display revenue ex-TAC was $1,899 million for the full year of 2012,
    a 2 percent decrease compared to $1,932 million for the prior year.
  *The number of ads sold on core Yahoo! Properties decreased approximately
    10 percent compared to the fourth quarter of 2011 and increased
    approximately 3 percent compared to the third quarter of 2012.
  *Price-per-ad on core Yahoo! Properties increased approximately 7 percent
    compared to the fourth quarter of 2011 and increased approximately 15
    percent compared to the third quarter of 2012.

Search

  *GAAP search revenue was $482 million for the fourth quarter of 2012, a 4
    percent increase compared to $465 million for the fourth quarter of 2011.
    GAAP search revenue was $1,886 million for the full year of 2012, a 2
    percent increase compared to $1,853 million for the prior year.
  *Search revenue ex-TAC was $427 million for the fourth quarter of 2012, a
    14 percent increase compared to $376 million for the fourth quarter of
    2011. Search revenue ex-TAC was $1,611 million for the full year of 2012,
    a 9 percent increase compared to $1,478 million for the prior year.
  *Paid clicks, or the number of clicks on sponsored listings on Yahoo!
    Properties and Affiliate sites, increased approximately 11 percent
    compared to the fourth quarter of 2011 and increased approximately 8
    percent compared to the third quarter of 2012.
  *Price-per-click increased approximately 1 percent compared to the fourth
    quarter of 2011 and decreased approximately 2 percent compared to the
    third quarter of 2012.

Cash Balance

  *Cash, cash equivalents, and investments in marketable debt securities were
    $6 billion at December 31, 2012 compared to $2.5 billion at December 31,
    2011, an increase of $3.5 billion.
  *During the fourth quarter of 2012, Yahoo! repurchased 80 million shares
    for $1.5 billion. During the year ended December 31, 2012, Yahoo!
    repurchased 126 million shares for $2.2 billion.

Conference Call

Yahoo! will host a conference call to discuss fourth quarter and full year
2012 results at 5 p.m. Eastern Time today. On the conference call, Yahoo! will
also provide its business outlook for the first quarter and full year of 2013.
A live Webcast of the conference call, together with supplemental financial
information, can be accessed through the Company's Investor Relations Website
at http://investor.yahoo.com/results.cfm. In addition, an archive of the
Webcast can be accessed through the same link. An audio replay of the call
will be available for one week following the conference call by calling (888)
286-8010 or (617) 801-6888, reservation number: 30622830.

Non-GAAP Financial Measures

This press release and its attachments include the followingfinancial
measures defined as non-GAAP financial measures by the Securities and Exchange
Commission (“SEC”): revenue ex-TAC; adjusted EBITDA; non-GAAP income from
operations; non-GAAP net earnings; non-GAAP net earnings per diluted share;
and free cash flow.

Revenue ex-TAC is GAAP revenue less traffic acquisition costs. Adjusted
EBITDA, non-GAAP income from operations, non-GAAP net earnings and non-GAAP
earnings per diluted share exclude certain gains, losses, and expenses that we
do not believe are indicative of ongoing results.Adjusted EBITDA also
excludes taxes, depreciation, amortization of intangible assets, stock-based
compensation expense, other income, net (which includes interest), earnings in
equity interests, and net income attributable to noncontrolling interests.
Free cash flow is GAAP net cash provided by (used in) 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.

These measures may be different than 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 (“GAAP”). Explanations of the Company’s non-GAAP financial measures
and reconciliations of these financial measures to the GAAP financial measures
the Company considers most comparable are included in the accompanying “Note
to Unaudited Condensed Consolidated Financial Statements,” “Supplemental
Financial Data and GAAP to Non-GAAP Reconciliations,” and “GAAP to Non-GAAP
Reconciliations.”

About Yahoo!

Yahoo! is focused on making the world's daily habits inspiring and
entertaining. By creating highly personalized experiences for our users, we
keep people connected to what matters most to them, across devices and around
the globe. In turn, we create value for advertisers by connecting them with
the audiences that build their businesses. Yahoo! is headquartered in
Sunnyvale, Calif., and has offices located throughout the Americas, Asia
Pacific (APAC) and the Europe, Middle East and Africa (EMEA) regions. For more
information, visit the pressroom (pressroom.yahoo.net) or the company blog
(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 and 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, 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; 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
January 28, 2013. 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 September 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 Annual Report on Form 10-K for the year
ended December 31, 2012, which will be filed with the SEC in the first quarter
of 2013.

Yahoo!, the Yahoo! logos, omg! and Flickr 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,     December 31,
                                                 2011             2012
                                                                    
ASSETS
Current assets:
Cash and cash equivalents                        $ 1,562,390      $ 2,667,778
Short-term marketable debt securities              493,189          1,516,175
Accounts receivable, net                           1,037,474        1,008,448
Prepaid expenses and other current assets          359,483          460,312
Total current assets                               3,452,536        5,652,713
                                                                    
Long-term marketable debt securities               474,338          1,838,425
Alibaba Group Preference Shares                    -                816,261
Property and equipment, net                        1,730,888        1,685,845
Goodwill                                           3,900,752        3,826,749
Intangible assets, net                             254,600          153,973
Other long-term assets                             220,628          289,130
Investments in equity interests                    4,749,044        2,840,157
                                                                    
Total assets                                     $ 14,782,786     $ 17,103,253
                                                                    
                                                                    
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable                                 $ 166,595        $ 184,831
Accrued expenses and other current                 846,044          808,475
liabilities
Deferred revenue                                   194,722          296,926
Total current liabilities                          1,207,361        1,290,232
                                                                    
Long-term deferred revenue                         43,639           407,560
Capital lease and other long-term                  134,905          124,587
liabilities
Deferred and other long-term tax                   815,534          675,271
liabilities, net
Total liabilities                                  2,201,439        2,497,650
                                                                    
Total Yahoo! Inc. stockholders' equity             12,541,067       14,560,200
Noncontrolling interests                           40,280           45,403
Total equity                                       12,581,347       14,605,603
                                                                    
Total liabilities and equity                     $ 14,782,786     $ 17,103,253
                                                                    

Yahoo! Inc.                                                                       
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
                                                           
                                                                                       
               Three Months Ended               Year Ended
               December 31,                     December 31,
               2011            2012             2011            2012
                                                                                       
                                                                                       
Revenue        $ 1,324,153     $ 1,345,807      $ 4,984,199     $ 4,986,566
                                                                                       
Operating
expenses:
Cost of
revenue -
Traffic          155,453         124,961          603,371         518,906
acquisition
costs
Cost of
revenue -        263,609         287,147          983,626         1,101,660
Other
Sales and        289,366         274,122          1,122,193       1,101,572
marketing
Product          235,810         240,417          919,368         885,824
development
General and      112,614         144,610          497,288         540,247
administrative
Amortization     8,525           7,926            33,592          35,819
of intangibles
Restructuring    16,329         76,634          24,420         236,170    
charges, net
Total
operating        1,081,706      1,155,817       4,183,858      4,420,198  
expenses
                                                                                       
Income from      242,447         189,990          800,341         566,368
operations
                                                                                       
Other income,    9,768          17,730          27,175         4,647,839  
net
                                                                                       
Income before
income taxes
and earnings     252,215         207,720          827,516         5,214,207
in equity
interests
                                                                                       
Provision for    (78,287   )     (83,007    )     (241,767  )     (1,940,043 )
income taxes
Earnings in
equity           127,063        148,939         476,920        676,438    
interests
                                                                                       
Net income       300,991         273,652          1,062,669       3,950,602
                                                                                       
Less: Net
income
attributable     (5,419    )     (1,385     )     (13,842   )     (5,123     )
to
noncontrolling
interests
                                                                                       
Net income
attributable   $ 295,572      $ 272,267       $ 1,048,827    $ 3,945,479  
to Yahoo! Inc.
                                                                                       
Net income
attributable
to Yahoo! Inc.
common         $ 0.24         $ 0.23          $ 0.82         $ 3.28       
stockholders
per share -
diluted
                                                                                       
Shares used in
per share        1,241,009      1,168,336       1,282,282      1,202,906  
calculation -
diluted
                                                                                       
Stock-based
compensation
expense by
function:
Cost of
revenue -      $ 1,010         $ 2,207          $ 3,489         $ 10,078
Other
Sales and        22,291          22,161           65,120          82,115
marketing
Product          25,291          19,955           89,587          74,284
development
General and      10,255          13,139           45,762          57,888
administrative
Restructuring
expense
accelerations    1,492           -                214             (3,429     )
(reversals),
net
                                                      
                                                                                       
Supplemental
Financial
Data:
Revenue ex-TAC $ 1,168,700     $ 1,220,846      $ 4,380,828     $ 4,467,660
Adjusted       $ 469,453       $ 509,024        $ 1,654,583     $ 1,698,839
EBITDA
Free cash      $ 327,013       $ (2,044,502 )   $ 725,801       $ (834,865   )
flow^(1)(2)
                                                              

       The year ended December 31, 2012 includes a payment of $550
^(1)  million from Alibaba in satisfaction of certain future royalty     
       payments under the existing technology and intellectual property
       license agreement with Alibaba.
       The three months and year ended December 31, 2012 include a cash
^(2)   tax payment of $2.3 billion which is related to the sale of
       Alibaba shares.
                                                                             

Yahoo! Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
                                                                
                                                                         
                Three Months Ended                    Year Ended
                December 31,                        December 31,
                2011              2012             2011                2012
                                                                         
CASH FLOWS
FROM
OPERATING
ACTIVITIES:
Net income      $ 300,991        $ 273,652          $ 1,062,669        $ 3,950,602
Adjustments
to reconcile
net income to
net cash
provided by
operating
activities:
Depreciation      125,693          148,213            530,516            549,235
Amortization
of intangible     29,939           21,279             117,723            105,366
assets
Stock-based
compensation      60,339           57,462             204,172            220,936
expense, net
Non-cash
restructuring     990              69,434             990                109,896
charges
Accrued
dividend
income
related to        -                (20,000    )       -                  (20,000    )
Alibaba Group
Preference
Shares
Tax benefits
(detriments)
from              23,523           (21,969    )       33,497             (31,440    )
stock-based
awards
Excess tax
benefits from     (25,966   )      (5,093     )       (70,680    )       (35,844    )
stock-based
awards
Deferred          1,652            121,968            70,392             (769,320   )
income taxes
Earnings in
equity            (127,063  )      (148,939   )       (476,920   )       (676,438   )
interests
Dividends
received from     -                -                  75,391             83,648
Yahoo Japan
Gain related
to sale of        -                -                  -                  (4,603,322 )
Alibaba Group
shares
Gain from
sale of
investments,      (8,416    )      6,468              4,405              (11,840    )
assets, and
other, net
Changes in
assets and
liabilities,
net of
effects of
acquisitions:
Accounts
receivable,       (117,992  )      (52,190    )       38,100             34,752
net
Prepaid
expenses and      87,441           37,470             97,849             78,529
other
Accounts          27,000           35,204             (316       )       12,747
payable
Accrued
expenses and      61,012           (2,373,163 )       (290,070   )       255,799
other
liabilities
Deferred          (7,809    )      (49,671    )       (73,912    )       465,140    
revenue
Net cash
provided by
(used in)         431,334         (1,899,875 )       1,323,806         (281,554   )
operating
activities
^(1)(2)
                                                                         
CASH FLOWS
FROM
INVESTING
ACTIVITIES:
Acquisition
of property
and               (130,287  )      (149,720   )       (593,294   )       (505,507   )
equipment,
net
Purchases of
marketable        (95,232   )      (1,681,467 )       (1,708,530 )       (3,520,327 )
debt
securities
Proceeds from
sales of
marketable        441,719          56,968             1,508,948          741,947
debt
securities
Proceeds from
maturities of
marketable        89,305           130,750            1,316,197          381,403
debt
securities
Proceeds
related to
sale of           -                -                  -                  6,247,728
Alibaba
shares, net
Purchases of
intangible        (799      )      (711       )       (11,819    )       (3,799     )
assets
Proceeds from
the sale of       -                -                  21,271             26,132
investments
Acquisitions,
net of cash       (255,018  )      (5,716     )       (323,830   )       (5,716     )
acquired
Other
investing         (818      )      9,604             (6,581     )       183        
activities,
net
Net cash
provided by
(used in)         48,870          (1,640,292 )       202,362           3,362,044  
investing
activities
                                                                         
CASH FLOWS
FROM
FINANCING
ACTIVITIES:
Proceeds from
issuance of       49,529           101,951            156,226            218,371
common stock,
net
Repurchases
of common         (416,237  )      (1,451,462 )       (1,618,741 )       (2,167,841 )
stock
Excess tax
benefits from     25,966           5,093              70,680             35,844
stock-based
awards
Tax
withholdings
related to
net share
settlements       (8,712    )      (12,842    )       (44,761    )       (60,939    )
of restricted
stock awards
and
restricted
stock units
Other
financing         (11,029   )      (1,373     )       (19,362    )       (4,892     )
activities,
net
Net cash used
in financing      (360,483  )      (1,358,633 )       (1,455,958 )       (1,979,457 )
activities
                                                                         
Effect of
exchange rate
changes on        (21,550   )      6,178              (34,247    )       4,355
cash and cash
equivalents
                                                                         
Net change in
cash and cash     98,171           (4,892,622 )       35,963             1,105,388
equivalents
Cash and cash
equivalents,      1,464,219       7,560,400         1,526,427         1,562,390  
beginning of
period
                                                                         
Cash and cash
equivalents,    $ 1,562,390     $ 2,667,778       $ 1,562,390       $ 2,667,778  
end of period
                                                                         

         The year ended December 31, 2012 includes a payment of $550 million
 ^(1)  from Alibaba in satisfaction of certain future royalty payments under
         the existing technology and intellectual property license agreement
         with Alibaba.
         The three months and year ended December 31, 2012 include a cash tax
  ^(2)   payment of $2.3 billion which is related to the sale of Alibaba
         shares.
         

                                 Yahoo! Inc.

        Note to Unaudited Condensed Consolidated Financial Statements

This press release and its attachments include the non-GAAP financial measures
of revenue excluding traffic acquisition costs (“revenue ex-TAC”); adjusted
EBITDA; non-GAAP income from operations; non-GAAP net earnings; non-GAAP net
earnings per diluted share; and free cash flow, which are reconciled to
revenue; net income attributable to Yahoo! Inc. (in the case of adjusted
EBITDA and non-GAAP net earnings); income from operations; net income
attributable to Yahoo! Inc. common stockholders per share – diluted; and net
cash provided by (used in) operating activities, which we believe are the most
comparable GAAP measures. We use these non-GAAP financial measures for
internal managerial purposes 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, revenue, net income attributable to Yahoo!
Inc., income from operations, net income attributable to Yahoo! Inc. common
stockholders per share - diluted and net cash provided by (used in) operating
activities, calculated in accordance with GAAP.

Revenue ex-TAC is a non-GAAP financial measure defined as GAAP revenue less
TAC. TAC consists of payments made to third-party entities that have
integrated our advertising offerings into their Websites or other offerings
(those Websites and other offerings, “Affiliate sites”) and payments made to
companies that direct consumer and business traffic to Yahoo!’s online
properties and services (“Yahoo! Properties”). Based on the terms of the
Search Agreement with Microsoft, Microsoft retains a revenue share of 12
percent of the net (after TAC) search revenue generated on Yahoo! Properties
and Affiliate sites in transitioned markets. Yahoo! reports the net revenue it
receives under the Search Agreement as revenue and no longer presents the
associated TAC. Accordingly, for transitioned markets Yahoo! reports GAAP
revenue associated with the Search Agreement on a net (after TAC) basis rather
than a gross basis.For markets that have not yet transitioned, revenue
continues to be recorded on a gross basis, and TAC is recorded as a part of
operating expenses. We present revenue ex-TAC to provide investors a metric
used by the Company for evaluation and decision-making purposes during the
Microsoft transition and to provide investors with comparable revenue numbers
when comparing periods preceding, during and following the transition period.
A limitation of revenue ex-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 revenue and total
operating expenses, which includes TAC in non-transitioned markets.

Adjusted EBITDA is defined as net income attributable to Yahoo! Inc. before
taxes, depreciation, amortization of intangible assets, stock-based
compensation expense, other income, net (which includes interest), earnings in
equity interests, net income attributable to noncontrolling interests and
other gains, losses, and expenses that we do not believe are indicative of our
ongoing results. Yahoo! presents adjusted EBITDA because the exclusion of
certain gains, losses, and expenses facilitates comparisons of the operating
performance of our Company on a period to period basis. Adjusted EBITDA has
limitations as an analytical tool and should not be considered in isolation or
as a substitute for results reported under GAAP. These limitations include:
adjusted EBITDA does not reflect tax payments and such payments reflect a
reduction in cash available to us; adjusted EBITDA does not reflect the
periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in our businesses; adjusted EBITDA does not include
stock-based compensation expense related to the Company’s workforce; adjusted
EBITDA also excludes other income, net (which includes interest), earnings in
equity interests, net income attributable to noncontrolling interests and
other gains, losses, and expenses that we do not believe are indicative of our
ongoing results, and these items may represent a reduction or increase in cash
available to us; and adjusted EBITDA is a measure that may be unique to the
Company, and therefore it may not enhance the comparability of our results to
other companies in our industry. Management compensates for these limitations
by also relying on the comparable GAAP financial measure of net income
attributable to Yahoo! Inc., which includes taxes, depreciation, amortization,
stock-based compensation expense, other income, net (which includes interest),
earnings in equity interests, net income attributable to noncontrolling
interests and the other gains, losses and expenses that are excluded from
adjusted EBITDA.

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 earnings 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 earnings and non-GAAP net earnings 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 earnings and non-GAAP net earnings 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
earnings and non-GAAP net earnings per diluted share.

Free cash flow is a non-GAAP financial measure defined as net cash provided by
(used in) 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.

Yahoo! Inc.
Supplemental Financial Data and GAAP to Non-GAAP Reconciliations
(in thousands)
                                                                                     
                             Three Months Ended               Year Ended
                             December 31,                     December 31,
                              2011          2012           2011          2012        
      Revenue for
      groups of
      similar
      services:
      Display                $ 612,047       $ 590,627        $ 2,160,309     $ 2,142,818
      Search                   464,530         481,957          1,853,110       1,885,860
      Other                   247,576       273,223        970,780       957,888     
      Total revenue          $ 1,324,153    $ 1,345,807     $ 4,984,199    $ 4,986,566   
                                                                                                
      Revenue
      excluding
      traffic
      acquisition
      costs ("revenue
      ex-TAC") for
      groups of
      similar
      services:
      GAAP display           $ 612,047       $ 590,627        $ 2,160,309     $ 2,142,818
      revenue
      TAC associated
      with display            (66,426   )    (70,218    )    (227,822  )    (243,557    )
      revenue
      Display revenue        $ 545,621      $ 520,409       $ 1,932,487    $ 1,899,261   
      ex-TAC
                                                                                                
      GAAP search            $ 464,530       $ 481,957        $ 1,853,110     $ 1,885,860
      revenue
      TAC associated
      with search
      revenue for             (89,027   )    (54,743    )    (375,409  )    (275,349    )
      non-transitioned
      markets
      Search revenue         $ 375,503      $ 427,214       $ 1,477,701    $ 1,610,511   
      ex-TAC
                                                                                                
      Other GAAP             $ 247,576       $ 273,223        $ 970,780       $ 957,888
      revenue
      TAC associated
      with other GAAP         -             -              (140      )    -           
      revenue
      Other revenue          $ 247,576      $ 273,223       $ 970,640      $ 957,888     
      ex-TAC
                                                                                                
      Revenue ex-TAC:
      GAAP revenue           $ 1,324,153     $ 1,345,807      $ 4,984,199     $ 4,986,566
      TAC                     (155,453  )    (124,961   )    (603,371  )    (518,906    )
      Revenue ex-TAC         $ 1,168,700    $ 1,220,846     $ 4,380,828    $ 4,467,660   
                                                                                                
      Revenue ex-TAC
      by segment:
      Americas:
      GAAP revenue           $ 884,780       $ 960,118        $ 3,302,989     $ 3,461,633
      TAC                     (45,072   )    (52,357    )    (160,110  )    (182,511    )
      Revenue ex-TAC         $ 839,708      $ 907,761       $ 3,142,879    $ 3,279,122   
                                                                                                
      EMEA:
      GAAP revenue           $ 164,238       $ 113,527        $ 629,383       $ 472,061
      TAC                     (54,559   )    (16,982    )    (221,916  )    (114,230    )
      Revenue ex-TAC         $ 109,679      $ 96,545        $ 407,467      $ 357,831     
                                                                                                
      Asia Pacific:
      GAAP revenue           $ 275,135       $ 272,162        $ 1,051,827     $ 1,052,872
      TAC                     (55,822   )    (55,622    )    (221,345  )    (222,165    )
      Revenue ex-TAC         $ 219,313      $ 216,540       $ 830,482      $ 830,707     
                                                                           
      Total revenue          $ 1,168,700    $ 1,220,846     $ 4,380,828    $ 4,467,660   
      ex-TAC
                                                                                                
      Direct costs by
      segment ^(3):
      Americas               $ 187,467       $ 183,236        $ 696,103       $ 733,316
      EMEA                     41,615          41,325           165,750         161,990
      Asia Pacific             55,361          60,046           225,417         224,114
      Global operating         414,804         443,272          1,638,975       1,671,958
      costs ^(4)
      Restructuring            16,329          76,634           24,420          236,170
      charges, net
      Depreciation and         151,830         168,769          625,864         649,267
      amortization
      Stock-based
      compensation            58,847        57,574         203,958       224,477     
      expense
      Income from            $ 242,447      $ 189,990       $ 800,341      $ 566,368     
      operations
                                                                          
      Reconciliation
      of net income
      attributable to
      Yahoo! Inc. to
      adjusted EBITDA:
      Net income
      attributable to        $ 295,572       $ 272,267        $ 1,048,827     $ 3,945,479
      Yahoo! Inc.
      Costs associated
      with the Korea           -               99,485           -               99,485
      business and its
      closure ^(5)
      Deal-related
      costs related to         -               -                -               6,500
      the sale of
      Alibaba shares
      Depreciation and         151,830         168,769          625,864         649,267
      amortization
      Stock-based
      compensation             58,847          57,574           203,958         224,477
      expense
      Restructuring
      charges, net             16,329          (6,794     )     24,420          152,742
      ^(5)
      Other income,            (9,768   )     (17,730   )     (27,175  )     (4,647,839 )
      net
      Provision for            78,287         83,007          241,767        1,940,043
      income taxes
      Earnings in              (127,063 )     (148,939  )     (476,920 )     (676,438   )
      equity interests
      Net income
      attributable to         5,419        1,385         13,842       5,123      
      noncontrolling
      interests
      Adjusted EBITDA        $ 469,453      $ 509,024       $ 1,654,583    $ 1,698,839   
      Reconciliation
      of net cash
      provided by
      (used in)              
      operating
      activities to
      free cash flow:
      Cash provided by
      (used in)              $ 431,334       $ (1,899,875 )   $ 1,323,806     $ (281,554    )
      operating
      activities
      Acquisition of
      property and             (130,287  )     (149,720   )     (593,294  )     (505,507    )
      equipment, net
      Dividends
      received from            -               -                (75,391   )     (83,648     )
      equity investees
      Excess tax
      benefits from           25,966        5,093          70,680        35,844      
      stock-based
      awards
      Free cash flow ^       $ 327,013      $ (2,044,502 )   $ 725,801      $ (834,865    )
      (1)(2)
                                                                                                

           The year ended December 31, 2012 includes a payment of $550
  ^(1)  million from Alibaba in satisfaction of certain future royalty   
           payments under the existing technology and intellectual property
           license agreement with Alibaba.
           The three months and year ended December 31, 2012 include a cash
    ^(2)   tax payment of $2.3 billion which is related to the sale of
           Alibaba shares.
           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
    ^(3)   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.
           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
    ^(4)   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.
           For the three months and year ended December 31, 2012, costs
    ^(5)   associated with the Korea business and its closure include $83
           million of restructuring charges.

Yahoo! Inc.
GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
                                                             
                                                                  
                                                Three Months Ended
                                                December 31,
                                                2011            2012
                                                                  
GAAP Income from operations                     $ 242,447       $ 189,990
                                                                  
(a) Costs associated with the Korea business      -               99,485
    and its closure
                                                                  
(b) Restructuring charges, net ^(6)               16,329          (6,794     )
                                                                 
Non-GAAP Income from operations                 $ 258,776      $ 282,681    
                                                                  
                                                                  
GAAP Net income attributable to Yahoo! Inc.     $ 295,572       $ 272,267
                                                                  
(a) Costs associated with the Korea business      -               99,485
    and its closure
                                                                  
(b) Restructuring charges, net ^(6)               16,329          (6,794     )
                                                                  
    To adjust the provision for income taxes
(c) to exclude the tax impact of items (a)        (5,192    )     4,626
    and (b) above for the three months ended
    December 31, 2011 and 2012
                                                                 
Non-GAAP Net earnings                           $ 306,709      $ 369,584    
                                                                  
GAAP Net income attributable to Yahoo! Inc.     $ 0.24         $ 0.23       
common stockholders per share - diluted
                                                                  
Non-GAAP Net earnings per share - diluted       $ 0.25         $ 0.32       
                                                                  
Shares used in per share calculation -            1,241,009      1,168,336  
diluted
                                                                  
                                                                  
                                                Year Ended
                                                December 31,
                                                2011            2012
                                                                  
GAAP Income from operations                     $ 800,341       $ 566,368
                                                                  
(a) Costs associated with the Korea business      -               99,485
    and its closure
                                                                  
(b) Restructuring charges, net ^(6)               24,420          152,742
                                                                  
(c) Deal-related costs related to the sale of     -               6,500
    Alibaba shares
                                                                 
Non-GAAP Income from operations                 $ 824,761      $ 825,095    
                                                                  
                                                                  
GAAP Net income attributable to Yahoo! Inc.     $ 1,048,827     $ 3,945,479
                                                                  
(a) Costs associated with the Korea business      -               99,485
    and its closure
                                                                  
(b) Restructuring charges, net ^(6)               24,420          152,742
                                                                  
(c) Deal-related costs related to the sale of     -               6,500
    Alibaba shares
                                                                  
(d) Gain related to sale of Alibaba shares        -               (4,603,322 )
                                                                  
    Non-cash gain related to the dilution of
(e) the Company's ownership interest in           (25,083   )     -
    Alibaba Group, which is included in
    earnings in equity interests
                                                                  
    To adjust the provision for income taxes
(f) to exclude the tax impact of items (a)        (7,764    )     1,805,940
    through (d) above for the year ended
    December 31, 2011 and 2012
                                                                  
                                                                 
Non-GAAP Net earnings                           $ 1,040,400    $ 1,406,824  
                                                                  
GAAP Net income attributable to Yahoo! Inc.     $ 0.82         $ 3.28       
common stockholders per share - diluted
                                                                  
Non-GAAP Net earnings per share - diluted       $ 0.81         $ 1.17       
                                                                  
Shares used in per share calculation -            1,282,282      1,202,906  
diluted

       For the three months and year ended December 31, 2012, this amount
^(6)  excludes the restructuring charges related to the Korea business and
       its closure of $83 million, which is included in item (a) above.

Contact:

Yahoo! Inc.
Media Relations Contact:
Sara Gorman, 408-349-4040
sgorman@yahoo-inc.com
Investor Relations Contact:
Joon Huh, 408-349-3382
investorrelations@yahoo-inc.com
 
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