Yahoo 1997 Annual Report Download - page 19

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expenses consist primarily of compensation and fe e s for p rofe s s ion a l s e rvice s . Th e ye a r-t o-ye a r in cre a s e s
in absolute dollars are primarily attributa b le t o in cre a s e s in s t a ffin g a n d u s a g e of p rofe s s ion a l s e rvice s .
The Company believes that the absolute d olla r le ve l of g e n e ra l a n d a d m in is t ra t ive e xp e n s e s w ill in cre a s e
in future periods, as a result of increase d s t a ffin g a n d fe e s for p rofe s s ion a l s e rvice s . As a p e rce n t a g e of
net revenues, the Company currently anticipa t e s t h a t g e n e ra l a n d a d m in is t ra t ive e xp e n s e s w ill a p p roxi-
mate current levels in the first half of 1998 a n d m a y d e cre a s e s lig h t ly d u rin g t h e s e con d h a lf of 1998.
Othe r – Non -re currin g Cos ts . During July 1997, the Company and VISA entered into an agre e m e n t u n d e r
w hich t h e Visa Grou p re le a s e d t h e Com p a n y from ce rtain ob lig a t ion s a n d cla im s . In con n e ct ion w it h t h is
agreement, Yahoo! issued 699,481 shares of Yahoo! Common Stock to the Visa Group, for w h ich t h e
Com p a ny recorded a one-time, non-cash, pre-ta x ch a rg e of $21,245,000 in t h e s e con d q u a rter e n d e d J u n e 30,
1997. In conjunction w ith t h e Oct ob e r 1997 a cq u is it ion of Fou r11 Corp ora t ion , t h e Com p a n y re corded a one-
time charge of $3,850,000 w hich con s is t e d of investment banking fees, legal a n d a ccou n t in g fe e s , re d u n d a n -
cy costs, and cert a in ot h e r expenses directly related to the a cq u is it ion .
Inves tm ent In com e , Ne t. Inve s t m e n t in come, net of investment expense , w as $4,982,000 for the yea r e n d e d
December 31, 1997 as compared to $3,928,000 for the ye a r e n d e d De ce m b e r 31, 1996. Th e in cre a s e of
$1,054,000 from 1996 to 1997 is primarily attributable to a higher ave ra g e in ve s t m e n t b a la n ce a s a re s u lt of
private and public offering proceeds rece ive d d u rin g Ma rch a n d Ap ril of 1996. In ve s t m e n t in com e in fu t u re
periods may fluctuate as a result of fluctua t ion s in a ve ra g e ca s h b a la n ce s m a in t a in e d b y t h e Com p a n y a n d
changes in the market rates of its inve s t m e n t s .
Min ority In te re sts in Ope ration s of Con solidate d Subs idiarie s .Min orit y in t e re s t s in op e ra tions of consoli-
dated subsidiaries w ere $727,000 and $540,000 for the years ende d De ce m b e r 31, 1997 a n d 1996, re s p e c-
tively. Th e in cre a s e from 1996 t o 1997 is p rim a rily a t t rib u t a b le t o t h e s t a g g e re d la u n ch d a t e s of t h e join t
ventures. Yahoo! Europe operations began during the third quarter of 1996 and Yahoo! Kore a op e ra t ion s
start e d in t h e t h ird q u a rt e r of 1997 a n d b ot h s u b s id ia rie s are still in the early stages of de ve lop m e n t . Th e
Com p a ny expects that minority interests in operations of consolida t e d s u b s id ia rie s in t h e a g g re g a t e w ill
continue to fluctuate in future periods as a function of the re s u lt s from con s olid a t e d s u b s id ia rie s . Wh e n ,
and if, the consolidated subsidiaries become p rofit a b le , t h e m in orit y in t e re s t s e lim in a t ion on t h e s t a t e m e n t
of operations w ill h a ve an adverse effect on the Company’s n e t re s u lt s .
Incom e Tax e s. No p rovis ion for fe deral and state income ta xe s h a s b e e n re cord e d a s t h e Com p a n y h a s
incurred net operating losses through Decembe r 31, 1997. At De ce m b e r 31, 1997, t h e Com p a n y h a d
approximately $54,200,000 of federal net ope ra t in g los s ca rryforw ards for ta x re p orting purposes a va ila b le
to offset future taxable income; such carryforw ards w ill expire beginning in 2010. Additionally, t h e
Com p a ny has approximately $26,200,000 of California net opera t in g los s ca rryforw ards for tax re p orting
purposes w hich w ill e xp ire b e g in n in g in 2003. De fe rre d t a x assets and related valua t ion a llow ances tota le d
$27,198,000 of w hich a p p roxim a t e ly $18,600,000 re late to cert a in U.S. operating loss carryforw ards
resulting from the exercise of employee s t ock op t ion s , t h e t a x b e n e fit of w h ich , w hen recognized, w ill be
accounted for as a credit to additional pa id -in ca p it a l ra t h e r t h a n a s a re d u ct ion of t h e in com e t a x p rovis ion .
The Company currently expects its combined federa l a n d s t a t e in com e t a x ra t e t o in cre a s e t o a p p roxi-
mately 20% for 1998. This estimate is based on curre n t t a x la w and curre n t e s t im a t e of e a rn in g s , a n d is
subject to change.
Ne t Los s.Th e Com p a n y re cord e d n e t los s e s of $22,887,000, $4,285,000, a n d $799,000, or $0.53, $0.11, a n d
$0.03 per share for the years ende d De ce m b e r 31, 1997, 1996, a n d 1995, re s p e ct ive ly. Exclu d in g t h e e ffe ct
of the one-time, non-cash, pre-tax charge of $21,245,000 re cord e d d u rin g t h e s e con d q u a rter of 1997 for
the restructuring of the Yahoo! Marketplace agreeme n t s w ith the Visa Group and the one-time charge of
$3,850,000 recorded during the fourt h q u a rt e r of 1997 for cos t s in cu rre d for t h e a cquisition of Fou r11, t h e
Com p a ny earned $2,208,000.
Liquidity an d Capital Re s ource s
Yahoo! in ve s t s p re dominantly in instruments that are highly liquid, of quality investme n t g ra d e , a n d p re d om -
inantly have maturities of less than one ye a r w ith the inte n t t o m a ke s u ch fu n d s re a d ily a va ila b le for op e ra t -
ing purposes. At December 31, 1997, the Company had cash a n d ca s h e q u iva le n t s a n d in ve s t m e n t s in
marketable securities totaling $107,012,000 compa re d t o $103,984,000 a t De ce m b e r 31, 1996. For t h e ye a r
ended December 31, 1997, cash provided by ope ra t in g a ct ivit ie s w a s $3,123,000 com p a re d t o ca s h u s e d for
operating activities of $1,280,000 and $696,000 for the yea rs e n d e d De ce m b e r 31, 1996 a n d 1995, re s p e ct ive ly.
Ca pital expenditures for the years e n d e d De ce m b e r 31, 1997, 1996, a n d 1995 t ot a le d $6,580,000,
$3,077,000, and $192,000, respectively, a n d a re e xp e ct e d t o con t in u e t o in cre a s e in fu t u re p e riod s a s a result
of the Company’s g row t h . Ca p it a l e xp e n d it u re s h a ve generally been compose d of p u rch a s e s of com p u t e r
hardw are a nd softw are a s w e ll a s of fu rn it u re a n d le asehold improvements related to le a s e d fa cilit ie s .
For t h e year ended December 31, 1997, ca s h p rovid e d b y fin a n cin g a ct ivit ie s of $8,514,000 w a s p rim a ri-
ly due to proceeds of $6,409,000 from the issuance of Common Stock under the Company’s s t ock op t ion
and employee stock purchase plans. Additiona lly, p roce e d s of $999,000 w e re re ce ive d from m in orit y
investors in consolidated joint ventures. For the year e n d e d De ce m b e r 31, 1996, ca s h p rovid e d b y fin a n c-
ing activities of $103,206,000 w as p rim a rily due to the March 1996 issuance of 5,100,000 shares of
Ma ndatorily Redeemable Convertible Series C Preferred Stock for a g g re g a t e p roce e d s of $63,750,000, t h e
April 1996 initial public offering of 4,485,000 shares of Common Stock for net proceeds of $35,106,000, and
other issuances of Common Stock. Additionally, p roce e d s of $1,050,000 w e re re ce ive d from m in orit y
investors in consolidated joint ventures. For the year e n d e d De ce m b e r 31, 1995, ca s h p rovid e d b y fin a n c-
ing activities of $6,815,000 w as p rim a rily due to proceeds of $6,004,000 from the issuance of Convertible
Pre ferred Stock.
The Company currently has no material commitments othe r t h a n t h os e u n d e r t h e Ne t s ca p e Co-
Ma rketing agreement, the Netsca p e Pre m ie r Provid e r a g re e m e n t s , a n d op e ra t in g le a s e a g re e m e n t s .
Under the terms of the amended Co-Marketing a g re e m e n t , t h e Com p a n y h a s re m a in in g fixe d e xp e n s e s in