Yahoo 2003 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    We Value...Excellence We are committed to winning with integrity. We know leadership is hard won and should never be taken for granted. We aspire to flawless execution and don't take shortcuts on quality. We seek the best talent and promote its development. We are flexible and learn from our ...

  • Page 3
    ... more time on our network and using a greater variety of services. This accomplishment supports my belief that great products equal great business. Our Company provides a comprehensive marketing solutions platform for advertisers as well as premium products and services for users and businesses...

  • Page 4
    ...of integrating search throughout vertical areas of Yahoo!'s network, starting with product search, which resulted in a dramatic increase in the year-over-year growth rate of referrals to Yahoo! Shopping, and an early version of news search within Yahoo! News. Premium and fee-based services: We ended...

  • Page 5
    ... services such as pay-for-performance search. Yahoo!'s share gains and revenue growth in 2003 were the direct result of focused execution of our customer-centric selling strategy. For example, we further developed vertical category expertise, which creates and provides solutions to fit advertisers...

  • Page 6
    ...! Personals, which currently exists in a number of European and Asian countries. We are also addressing the important emerging Internet market in China through our recent acquisition of keyword search business 3721 Network Software Company and our auctionsbased joint venture with SINA Corporation...

  • Page 7
    ... market value of voting stock held by non-affiliates of the Registrant, based upon the closing sales price for the Registrant's Common Stock, as reported in the NASDAQ National Market System, was $15,444,607,992. Shares of Common Stock held by each officer and director and by each person who...

  • Page 8
    ...and Marketplace; Information and Content; Communications and Consumer Services; and Affiliate Services. Our basic products and service offerings are available without charge to our users. We also offer a variety of fee-based premium services that provide our users Operating Segments access to value...

  • Page 9
    ... Web search index, and through fees generated from customers who use our Web search services and incorporate the search results we provide into their online offerings to end users. See ''Affiliate Services'' below for further explanation. Local Yahoo! Autos offers information about buying, selling...

  • Page 10
    ... Manager, a free set of financial tools that provides an integrated view of an individual's financial life. In addition, Yahoo! Finance offers fee-based products, including a real-time stock quotes package, research reports and services to allow users to pay their bills online. Entertainment Yahoo...

  • Page 11
    ... perform a Web search, read the latest news, link to Yahoo! sites, and view promotions from Yahoo!'s key advertising partners. My Yahoo! is our free, personalized Web information service that allows registered members to create a personal profile which organizes and delivers information of personal...

  • Page 12
    ... using a specially designed Yahoo! Photos IMVironment. Users can also order prints with the click of a mouse as a premium service. Our online Communities help users build and manage relationships and includes properties such as Yahoo! Groups, Chat, Member Directory, and Message Boards. Yahoo! Groups...

  • Page 13
    ... Search services provide search results to some of our affiliates, who in turn incorporate these results into their online offerings to end users. Our search engine uses proprietary technology to crawl the Web, index and serve Web results on text-based queries. Customers pay per-query search fees...

  • Page 14
    ... Yahoo! Personals, Small Business Services, Yahoo! Mail and Yahoo! Enterprise Solutions. Listings revenue consists of revenues generated from a variety of consumer and business listings-based services, including access to the HotJobs database and classifieds, such as Yahoo! Autos, Yahoo! Real Estate...

  • Page 15
    ...greater number of Internet sites, media companies, and companies providing business services across a wide range of different online services, including: • companies offering communications, Web search, commercial search, information, community and entertainment services and Internet access either...

  • Page 16
    ... of America Online and Time Warner provides America Online with content from Time Warner's movie and television, music, books and periodicals, news, sports and other media holdings; access to a network of cable and other broadband delivery technologies; and considerable resources for future...

  • Page 17
    ... of the acquired companies or our own business as a result of any integration of new management personnel; Many parties are actively developing search, indexing, electronic commerce and other Web-related technologies, as well as a variety of online business models and methods. We believe that...

  • Page 18
    ... could harm the results of our business and lower our stock price. Our international segment competes with local Internet service providers that may have a competitive advantage. There can be no assurance that the purchasing pattern of customers advertising on the Yahoo! network will not continue...

  • Page 19
    ... relationships with advertisers to small and medium size businesses; • our user base being attractive to advertisers; • demand for our commercial search services by advertisers, users and businesses, including prices paid by advertisers, the number of searches performed by users and the rate at...

  • Page 20
    ...service interruptions may result from unanticipated demands on network infrastructure, increased traffic or problems in customer service to our access customers. Our ability to control technical and customer service issues is further limited by our dependence on SBC and BT for connectivity, customer...

  • Page 21
    ... in the form of lead-based fees, wherein retailers pay a fee based on the number of times a user clicks on a link to their site, transaction fees, and advertising fees. Users who had a favorable buying experience with a particular retailer may contact that retailer directly for future purchases...

  • Page 22
    ... plan and as a result our stock price may decline. 16 Our users must access our services through an Internet access provider, including providers of cable and DSL Internet access, with which the user establishes a direct billing relationship using a personal computer or other access device. To the...

  • Page 23
    ...companies and any interruption in that supply could cause service interruptions or reduce the quality of our product offerings. The number of individuals who access the Internet through devices other than a personal computer, such as personal digital assistants, mobile telephones and television set...

  • Page 24
    ... and Search Service. properties, such as news items, stock quotes, weather reports, maps and audio and video content from third parties. In particular, our music and entertainment properties rely on major sports organizations, radio and television stations, record labels, cable networks, businesses...

  • Page 25
    ... and geographically dispersed group of employees or anticipate our future growth, our business will be adversely affected. Additionally, our business relies on our financial reporting and data systems (including our systems for billing users of our fee-based services), which have grown increasingly...

  • Page 26
    ... to repay in cash and could result in dilution of our earnings per share. We host a wide variety of services that enable individuals to exchange information, generate content, conduct business and engage in various online activities on an international basis, including public message posting and...

  • Page 27
    ...and recommendations by securities analysts; the operating and stock price performance of other companies that investors may deem comparable to us; the operating performance and stock price of companies in which we have an equity investment, including Yahoo! Japan; and news reports relating to trends...

  • Page 28
    ... terms or other comparable terminology. This Report includes, among others for fiscal 2004, statements regarding our: • primary operating costs and expenses; • estimated goodwill from the Inktomi and Overture acquisitions; • capital expenditures; • use of funds from the sale of convertible...

  • Page 29
    ... a variety of claims arising in connection with our email, message boards, auction sites, shopping services, and other communications and community features, such as claims alleging defamation or invasion of privacy. In October 2000, 800-JR-Cigar, Inc. filed a complaint in the United States District...

  • Page 30
    ... impact on our financial position, results of operations or cash flows. An estimate of the potential loss, if any, or range of loss that could arise from the LAUNCH litigation cannot be made at this time. In January 2003, LAUNCH settled the LAUNCH litigation as to Sony Music Entertainment, Inc. In...

  • Page 31
    ... to pay any cash dividends in the near future. We did not make any unregistered sales of our common stock during the fourth quarter of 2003. Equity Compensation Plan Information The following table sets forth information as of December 31, 2003 with respect to shares of the Company's common stock...

  • Page 32
    ...December 31, 1999 2000 2001 2002 2003 Cash, cash equivalents and investments in marketable securities Restricted cash and restricted long-term investments Working capital Total assets Long-term liabilities Mandatorily redeemable convertible preferred stock Stockholders' equity $1,255,267 $ - $ 796...

  • Page 33
    ....yahoo.com, is a leading guide in terms of traffic, advertising, household and business user reach. Yahoo!'s global brand reaches the largest audience worldwide. Headquartered in Sunnyvale, California, we have offices in the United States, Europe, Asia, Latin America, Australia and Canada. We manage...

  • Page 34
    ...No one customer accounted for 10 percent or more of total revenues during 2001. We have agreements with various affiliates, networks of Web properties that have integrated our search service into their sites, to provide pay-for-performance search results. We pay affiliates based on click-throughs on...

  • Page 35
    ...a variety of consumer and business listings-based services, including access to the HotJobs database and classifieds, such as Yahoo! Autos, Yahoo! Real Estate and other search services. Revenues are recognized in the month in which the services are performed, provided that no significant obligations...

  • Page 36
    ...the Yahoo! network, compared to more than 85,000 during 2002 and more than 53,000 in 2001. Fees revenue in 2003 increased approximately $90 million, or 43 percent, as compared to 2002. Approximately $100 million was associated with an increase in the number of paying users for our fee-based services...

  • Page 37
    ...often carry reciprocal performance guarantees from the affiliate, variable payments based on a percentage of our revenue or based on a certain metric, such as number of searches or paid clicks, or a combination of the two. We expense traffic acquisition costs under two methods; agreements with fixed...

  • Page 38
    ... in 2004 compared to 2003, as the company continues to grow, and we expect to incur incremental costs in 2004 related to acquisitions completed in 2003. Stock Compensation. Stock compensation expense relates to the amortization of the intrinsic value of Yahoo! stock options issued in connection with...

  • Page 39
    ... of revenues for 2001 as a result of the cessation of goodwill amortization in connection with the adoption of Statement of Financial Accounting Standards No. 142 (''SFAS 142''), ''Goodwill and Other Intangible Assets.'' During 2001, we announced restructuring programs to balance our investment in...

  • Page 40
    ... financial information. Earnings in Equity Interests. Income Taxes. The provision for income taxes for 2003, 2002 and 2001 differs from the amount computed by applying the statutory federal rate principally due to foreign losses for which no tax benefit was provided, nondeductible stock-based...

  • Page 41
    ... primarily due to increased revenue from our search United States. On March 19, 2003, we completed the acquisition of Inktomi, a provider of Web search and paid inclusion services on the Internet. The acquisition combined our global audience and Inktomi's search technology to allow us to create...

  • Page 42
    ... resulted in a net cash outlay of approximately $148 million. The value of the common stock was determined based on the average market price of the common stock over the 5-day period surrounding the date the acquisition was announced in July 2003. The value of the stock options was determined using...

  • Page 43
    ... patents, affiliate and advertiser contracts and related relationships, trade names, trademarks and domain names with useful lives not exceeding five years. Other tangible assets acquired of approximately $218 million includes long-term prepaid traffic acquisition costs paid by Overture to Yahoo! of...

  • Page 44
    ... text-link advertisements, including pay-for-performance search advertisements, paid inclusion and algorithmic searches, transactions revenue, and revenue generated from a variety of consumer and business fee and listings-based services. In accordance with generally accepted accounting principles in...

  • Page 45
    ... using a discount rate determined by our management to be commensurate with the risk inherent in our business model. Our estimates of cash flows require significant judgment based on our historical results and anticipated results and are subject to many factors. The Company performed its annual...

  • Page 46
    ... our network and capabilities. Cash used in investing activities increased from 2002 to 2003 primarily as a result of the net purchases of marketable securities related to higher cash balances available for investing, as well as more cash used for acquisitions in 2003 compared to 2002. Cash used in...

  • Page 47
    ... securities could result in additional dilution to our stockholders. On April 21, 2003, Overture completed its purchase of the Web Search unit of Fast Search and Transfer ASA, a Norway based developer of search and real-time filtering technologies, for $70 million in cash, plus a contingent earn...

  • Page 48
    ...in the Financial Statements for further information related to the long-term debt. (2) The Company is obligated to make payments under contracts to provide search services to its affiliates, which represents traffic acquisition costs. Fixed rate securities may have their fair market value adversely...

  • Page 49
    ... United States are charged to our foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary. We are also exposed to foreign exchange rate fluctuations as the financial statements of foreign subsidiaries are translated into...

  • Page 50
    ... Financial Statements Consolidated Financial Statements: Report of Independent Auditors ...Consolidated Statements of Operations for each of the three years in the period ended December 31, 2003 ...Consolidated Balance Sheets at December 31, 2002 and 2003 ...Consolidated Statements of Cash Flows...

  • Page 51
    ....: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Yahoo! Inc. and its subsidiaries at December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the three...

  • Page 52
    ... per share amounts) YAHOO! INC. Years Ended December 31, 2001 2002 2003 Revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Product development General and administrative Stock compensation expense(1) Amortization of intangibles Restructuring costs Acquisition-related...

  • Page 53
    Consolidated Balance Sheets (in thousands, except par value) YAHOO! INC. December 31, 2002 2003 ASSETS Current assets: Cash and cash equivalents Short-term investments in marketable securities Accounts receivable, net of allowance of $23,852 and $31,961, respectively Prepaid expenses and other ...

  • Page 54
    ... the sales of other investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt, net Proceeds from issuance of common stock, net Repurchase of common stock Other Net cash provided by (used in) financing activities Effect of exchange rate...

  • Page 55
    ..., 2002 and 2003, the Company issued approximately 2 million, 12 million, and 40 million shares of common stock, respectively, in connection with acquisitions. See Note 6 - ''Acquisitions'' for further information. The accompanying notes are an integral part of these consolidated financial statements...

  • Page 56
    ... losses on securities Foreign currency translation adjustment Comprehensive income (loss) $ (92,788) (10,622) (3,402) $ (106,812) $ 42,815 (8,636) (1,768) 32,411 $ 237,879 (6,705) 11,385 $ 242,559 $ Number of Shares Common Stock Balance, beginning of year Common stock issued Repurchase of...

  • Page 57
    ... as the number of times a user clicks on an advertisement or search result. Per-query search fees are recognized based on the query volume in the period, and revenue from customers who pay a fixed fee to be included in the Web search index are recognized over the term of the agreement. Transactions...

  • Page 58
    The Company has agreements with various affiliates, networks of Web properties that have integrated the Company's search service into their sites, to provide pay-for-performance search results. The Company pays affiliates based on click-throughs on these listings. In accordance with EITF Issue No. ...

  • Page 59
    ... using the best available information as of the evaluation date, including the quoted market prices of comparable public companies, recent financing rounds of the investee and other investee specific information, in accordance with Accounting Principles Board Opinion No. 18, ''The Equity Method...

  • Page 60
    ... determines the fair value of its reporting units using the expected present value of future cash flows, giving consideration to the market comparable approach. If the carrying amount of the Company's reporting units exceeds the reporting unit's fair value, the Company performs the second step...

  • Page 61
    ... for additional information related to the zero coupon senior convertible notes. Stock-Based Compensation. Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and...

  • Page 62
    ... and methodology used to determine the fair value of stock-based compensation. Use of Estimates. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of...

  • Page 63
    ...million represented cash payments received in advance of revenue recognized related to the Company's agreement with Overture, its pay-for-performance search provider, which was acquired in 2003. The amount was eliminated in consolidation at acquisition date. See Note 6 - ''Acquisitions.'' Due after...

  • Page 64
    ... 2002 as a cumulative effect of an accounting change in the Company's Consolidated Statements of Operations. The fair value of the reporting unit giving rise to the transitional impairment loss was estimated using the expected present value of future cash flows and market valuation approach. Due to...

  • Page 65
    ... cash consideration less cash acquired of approximately $53 million resulted in a net cash outlay of approximately $153 million. The value of the common stock was determined based on the average market price of Yahoo! common stock over the 5-day period surrounding the date the terms of the exchange...

  • Page 66
    ...7, 2003, Yahoo! completed the acquisition of Overture, a provider of commercial search services on the Internet including pay-for-performance search services. Yahoo! believes that the combined assets will further position it as a leader in the Internet advertising sector. Together, the two companies...

  • Page 67
    ... patents, affiliate and advertiser contracts and related relationships, trade names, trademarks and domain names with useful lives not exceeding five years. Other tangible assets acquired of approximately $218 million includes long-term prepaid traffic acquisition costs paid by Overture to Yahoo! of...

  • Page 68
    ... venture agreement with a subsidiary of SOFTBANK whereby separate companies were formed in Germany, the United Kingdom, and France (collectively ''Yahoo! Europe'') to establish and manage versions of the Yahoo! Internet Guide for those countries, develop related online navigational services, and...

  • Page 69
    ... 1997, the Company signed a joint venture agreement with SOFTBANK and other SOFTBANK affiliated companies whereby Yahoo! Korea was formed to develop and operate a Korean version of the Yahoo! Internet Guide, develop related Korean online navigational services, and conduct other related business. The...

  • Page 70
    ... at face value. Yahoo! may not redeem the Notes prior to their maturity. As of December 31, 2003, the fair value of the Notes was approximately $966 million based on quoted market prices. Company to repurchase up to $500 million of its outstanding shares of common stock from time to time over the...

  • Page 71
    ...' Plan'') provides for the issuance of up to approximately 4 million non-statutory stock options to non-employee directors of the Company. Options under the Directors' Plan vest in equal monthly installments over four years for initial grants to new directors, and over four years for annual grants...

  • Page 72
    ... lapses upon meeting certain performance-based milestones, or passage of time, or a combination of both. Restricted stock grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of our common stock. Such value is recognized as an...

  • Page 73
    ... December 31, 2001 and 2002, the Company used its three-year trailing volatility to estimate expected stock price volatility used in the computation of stock-based compensation under the fair value method. For the year ended December 31, 2003, the Company used an equally weighted average of three...

  • Page 74
    ...No one customer accounted for 10 percent or more of total revenues during 2001. Revenues from the Company's agreement with Overture are included in marketing services for the years ended December 31, 2001 and 2002, and for the period from January 1, 2003 through October 7, 2003, the date the Company...

  • Page 75
    ...During 1999, the Company entered into agreements for the development of an office complex in Sunnyvale, California to serve as its headquarters. Upon substantial ... 2003 pertain to certain net operating loss carryforwards and credit carryforwards resulting from the exercise of employee stock ...

  • Page 76
    ... that could arise if the Company had engaged in such relationships. On April 21, 2003, Overture completed its purchase of the Web Search unit of Fast Search and Transfer ASA, a Norway based developer of search and real-time filtering technologies, for $70 million in cash, plus a contingent earn-out...

  • Page 77
    ..., and a variety of claims arising in connection with its email, message boards, auction sites, shopping services, and other communications and community features, such as claims alleging defamation or invasion of privacy. The Company does not believe, based on current knowledge, that any of the...

  • Page 78
    ... on its financial condition, results of operations or cash flows. In addition, the Company believes there are procedural defects to permitting these complaints to proceed on its behalf. On January 2, 2004, the Company completed the acquisition of 3721 Network Software Company Limited, a China-based...

  • Page 79
    Schedule II-Valuation and Qualifying Accounts Years Ended December 31, 2001 2002 and 2003 (in thousands) Balance at Beginning of Year Charged to Costs and Expenses Write-Offs Net of Recoveries Balance at End of Year Allowance for Doubtful Accounts 2001 2002 2003 $15,437 $19,995 $23,852 $11,...

  • Page 80
    ... Quarterly Financial Data (unaudited) (in thousands, except per share amounts) Quarters Ended March 31, 2002 June 30, September 30, December 31, March 31, 2002 2002 2002 2003 June 30, September 30, December 31, 2003 2003 2003 Revenues Gross profit Net income before cumulative effect of accounting...

  • Page 81
    ...Mr. Filo reports to Chairman and Chief Executive Officer, Terry Semel. He is involved in guiding Yahoo!'s vision, is involved in many key aspects of the business at a strategic and operational level, and is a stalwart of the Company's employee culture and morale. Mr. Filo co-developed Yahoo! in 1994...

  • Page 82
    ..., chief financial officer and controller. This code of ethics is posted on our Website located at www.yahoo.com. The code of ethics may be found as follows: From our main Web page, first click on ''Company Info'' at the bottom of the page and then on ''Investor Relations.'' Next click on ''Corporate...

  • Page 83
    .... and Inktomi Corporation (Filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on January 8, 2003 and incorporated herein by reference.) Agreement and Plan of Merger dated as of July 14, 2003 by and among the Registrant, July 2003 Merger Corp. and Overture Services, Inc (Filed...

  • Page 84
    ... (Europe) Ltd. (Filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.) Joint Venture Agreement dated August 31, 1997 between the Registrant, SOFTBANK Korea Corporation, SOFTBANK Corporation, and Yahoo! Japan...

  • Page 85
    ...Exhibit 10.44 to the December 23, 2003 Form S-3 and incorporated herein by reference.) Overture Search Services Agreement, dated May 1, 2002 by and between the Registrant and Overture Services, Inc. (Filed as Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the year ended December 31...

  • Page 86
    ... Employment Letter, dated as of March 20, 2003 between the Registrant and Gregory Coleman. (Filed as Exhibit 10.36 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.) Third Addendum to Overture Search Services Agreement, dated...

  • Page 87
    ...Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of February, 2004. YAHOO! INC. By: /s/ SUSAN DECKER Susan Decker Executive Vice President, Finance and Administration, and Chief Financial Officer...

  • Page 88
    ... this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report...

  • Page 89
    ... this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report...

  • Page 90
    ... In connection with the Annual Report on Form 10-K of Yahoo! (the ''Company'') for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), Terry Semel, as Chief Executive Officer of the Company, and Susan Decker, as Chief Financial...

  • Page 91
    ... a Drug-Free America Corporate Officers Terry Semel Chairman of the Board of Directors and Chief Executive Officer Operations Officers James Brock Senior Vice President, Communications and Consumer Services Ron Burkle Managing Partner of The Yucaipa Companies Jerry Yang Chief Yahoo and Director...

  • Page 92
    ... Monica, CA Yahoo! Investor Relations 701 First Avenue Building D Sunnyvale, CA 94089 A copy of this annual report can be found online at: http://yhoo.client.shareholder.com/ World Yahoo!s Asia Pacific Australia & New Zealand China Singapore Taiwan Japan Korea India Annual Stockholders' Meeting...

  • Page 93
    On November 19, 2003 Yahoo! hosted 1,795 yodelers at its Sunnyvale, CA headquarters, breaking the Guinness World Record for the world's largest simultaneous yodel.

  • Page 94
    www.yahoo.com YHOO-AR-04