Annual Reports

 
Quarterly Reports

  • 10-Q (May 9, 2017)
  • 10-Q (Nov 9, 2016)
  • 10-Q (Aug 8, 2016)
  • 10-Q (May 10, 2016)
  • 10-Q (Nov 5, 2015)
  • 10-Q (Aug 7, 2015)

 
8-K

 
Other

ALTABA INC. 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-10.33
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2005

 

 

 

OR

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from               to               

 

Commission File Number 0-28018

 


 

YAHOO! INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

77-0398689

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

701 First Avenue

Sunnyvale, California 94089

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (408) 349-3300

 


 

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes 
ý  No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 2, 2005

 

 

 

 

 

 

Common stock, $0.001 par value

 

1,408,953,447

 

 

 



 

YAHOO! INC.

 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2005

3

 

Condensed Consolidated Balance Sheets at December 31, 2004 and June 30, 2005

4

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2005

5

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

45

 

 

 

PART II.

OTHER INFORMATION

46

 

 

 

Item 1.

Legal Proceedings

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 3.

Defaults Upon Senior Securities

47

Item 4.

Submission of Matters to a Vote of Security Holders

47

Item 5.

Other Information

47

Item 6.

Exhibits

48

 

Signatures

49

 

2



 

PART I—FINANCIAL INFORMATION

 

Item 1.  Condensed Consolidated Financial Statements (unaudited)

 

YAHOO! INC.

 

Condensed Consolidated Statements of Operations

(unaudited, in thousands except per share amounts)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2004

 

June 30,
2005

 

June 30,
2004

 

June 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

832,299

 

$

1,252,997

 

$

1,590,085

 

$

2,426,739

 

Cost of revenues

 

297,383

 

485,898

 

579,088

 

939,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

534,916

 

767,099

 

1,010,997

 

1,487,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

191,875

 

246,406

 

358,170

 

476,925

 

Product development

 

87,140

 

125,544

 

164,129

 

244,893

 

General and administrative

 

63,159

 

81,430

 

120,715

 

154,975

 

Stock compensation expense*

 

7,140

 

10,948

 

19,712

 

20,414

 

Amortization of intangibles

 

36,108

 

41,414

 

66,620

 

81,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

385,422

 

505,742

 

729,346

 

978,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

149,494

 

261,357

 

281,651

 

508,720

 

Other income, net

 

13,179

 

979,736

 

27,557

 

1,029,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes, earnings in equity interests and minority interests

 

162,673

 

1,241,093

 

309,208

 

1,538,450

 

Provision for income taxes

 

(72,517

)

(515,855

)

(137,226

)

(636,290

)

Earnings in equity interests

 

24,108

 

33,105

 

43,976

 

62,483

 

Minority interests in operations of consolidated subsidiaries

 

(1,752

)

(3,654

)

(2,234

)

(5,394

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

112,512

 

$

754,689

 

$

213,724

 

$

959,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share—basic

 

$

0.08

 

$

0.54

 

$

0.16

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share—diluted

 

$

0.08

 

$

0.51

 

$

0.15

 

$

0.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation—basic

 

1,347,459

 

1,395,596

 

1,337,807

 

1,390,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculation—diluted

 

1,449,707

 

1,484,200

 

1,438,128

 

1,481,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Stock compensation expense by function:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

$

2,376

 

$

1,509

 

$

5,981

 

$

2,999

 

Product development

 

2,548

 

3,741

 

7,271

 

7,003

 

General and administrative

 

2,216

 

5,698

 

6,460

 

10,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stock compensation expense

 

$

7,140

 

$

10,948

 

$

19,712

 

$

20,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



 

YAHOO! INC.

 

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except par values)

 

 

 

December 31,
2004

 

June 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

823,723

 

$

1,920,423

 

Marketable debt securities

 

1,875,964

 

1,474,101

 

Marketable equity securities

 

812,288

 

 

Accounts receivable, net

 

479,993

 

548,408

 

Prepaid expenses and other current assets

 

98,507

 

157,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

4,090,475

 

4,100,850

 

 

 

 

 

 

 

Long-term marketable debt securities

 

1,042,575

 

1,530,149

 

Property and equipment, net

 

531,696

 

589,373

 

Goodwill

 

2,550,957

 

2,563,597

 

Intangible assets, net

 

480,666

 

491,494

 

Other assets

 

481,832

 

396,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

9,178,201

 

$

9,672,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

48,205

 

$

30,909

 

Accrued expenses and other current liabilities

 

853,115

 

709,394

 

Deferred revenue

 

279,387

 

304,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

1,180,707

 

1,044,590

 

 

 

 

 

 

 

Long-term deferred revenue

 

65,875

 

64,584

 

Long-term debt

 

750,000

 

750,000

 

Other long-term liabilities

 

35,907

 

81,237

 

Minority interests in consolidated subsidiaries

 

44,266

 

50,354

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common Stock, $0.001 par value; 5,000,000 shares authorized; 1,383,584 and 1,405,691 issued and outstanding, respectively

 

1,416

 

1,440

 

Additional paid-in capital

 

5,682,884

 

6,051,035

 

Deferred stock-based compensation

 

(28,541

)

(98,632

)

Treasury stock

 

(159,988

)

(324,883

)

Retained earnings

 

1,069,939

 

2,029,188

 

Accumulated other comprehensive income

 

535,736

 

23,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

7,101,446

 

7,681,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

9,178,201

 

$

9,672,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



 

YAHOO! INC.

 

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2004

 

June 30,
2005

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

213,724

 

$

959,249

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

143,620

 

184,368

 

Tax benefits from stock options

 

121,121

 

602,568

 

Earnings in equity interests

 

(43,976

)

(62,483

)

Dividends received

 

 

10,670

 

Minority interests in operations of consolidated subsidiaries

 

2,234

 

5,394

 

Stock compensation expense

 

19,712

 

20,414

 

(Gains)/losses from sales of investments, assets, and other, net

 

9,616

 

(952,266

)

Changes in assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Accounts receivable, net

 

(35,822

)

(78,157

)

Prepaid expenses and other assets

 

582

 

10,240

 

Accounts payable

 

(13,593

)

(14,193

)

Accrued expenses and other liabilities

 

51,869

 

79,816

 

Deferred revenue

 

16,590

 

24,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

485,677

 

789,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment, net

 

(94,388

)

(161,800

)

Purchases of marketable debt securities

 

(1,461,937

)

(5,474,827

)

Proceeds from sales and maturities of marketable debt securities

 

1,469,667

 

5,374,465

 

Acquisitions, net of cash acquired

 

(573,877

)

(126,374

)

Proceeds from sales of marketable equity securities

 

1,351

 

970,296

 

Other investing activities, net

 

15,137

 

(38,595

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

(644,047

)

543,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock, net

 

317,678

 

302,724

 

Repurchases of common stock

 

 

(164,895

)

Structured stock repurchases, net

 

(50,000

)

(359,931

)

Other financing activities, net

 

 

800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

267,678

 

(221,302

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

3,053

 

(15,073

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

112,361

 

1,096,700

 

Cash and cash equivalents at beginning of period

 

415,892

 

823,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

528,253

 

$

1,920,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5



 

Supplemental schedule:

 

Acquisition-related activities (in thousands):

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,
2004

 

June 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for acquisitions

 

$

619,611

 

$

127,452

 

Cash acquired in acquisitions

 

(45,734

)

(1,078

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

573,877

 

$

126,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, restricted stock and stock options issued in connection with acquisitions

 

$

2,209

 

$

44,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Note 3—“Acquisitions” for additional information.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6



 

YAHOO! INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1—The Company and Summary of Significant Accounting Policies

 

The Company.  Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!” or the “Company”) is a leading global Internet brand and one of the most trafficked Internet destinations worldwide.  Yahoo! seeks to provide Internet services that are essential and relevant to users and businesses through the provision of online properties (collectively referred to as the “Yahoo! Network”) to Internet users and a range of tools and marketing solutions for businesses to market to that community of users.

 

Stock Split.  On April 7, 2004, the Yahoo! Board of Directors approved a two-for-one split of the Company’s shares of common stock effected in the form of a stock dividend.  As a result of the stock split, Yahoo! stockholders received one additional share of Yahoo! common stock for each share of common stock held of record on April 26, 2004.  The additional shares of Yahoo! common stock were distributed on May 11, 2004.  All share and per share amounts in these condensed consolidated financial statements and related notes have been retroactively adjusted to reflect the stock split for all periods presented.

 

Basis of Presentation.  The condensed consolidated financial statements include the accounts of Yahoo! and its majority-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated.  Investments in entities in which the Company can exercise significant influence, but are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method and are included in other assets on the condensed consolidated balance sheets.  The Company has included the results of operations of acquired companies from the closing dates of the acquisitions.

 

The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items, which in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown.  The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future period.

 

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluates its estimates, including those related to uncollectible receivables, the useful lives of long-lived assets including property and equipment, investment fair values, goodwill and other intangible assets, income taxes and contingencies.  In addition, the Company uses assumptions when employing the Black-Scholes option valuation model to estimate the fair value of stock options granted for pro forma disclosure purposes.  The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources.  Actual results may differ from these estimates.

 

Certain prior period balances have been reclassified to conform to the current year presentation.  A new subtotal is being presented in the consolidated statement of operations: Income before income taxes, earnings in equity interests, and minority interests.  Earnings in equity interests and minority interests in operations of consolidated subsidiaries are now presented below the provision for income taxes.  In accordance with generally accepted accounting principles, these items have consistently been presented net of income taxes.  In addition, beginning in the fourth quarter of 2004, the Company made reclassifications in the consolidated balance sheets and consolidated cash flow statements related to the classification of auction rate securities.  Certain of these securities were included in the cash and cash equivalents lines in prior periods.  These amounts have been reclassified to short term marketable debt securities. The reclassification resulted in a reduction of $118 million in previously reported net cash used in investing activities and an increase of $118 million in the previously reported net change in cash and cash equivalents for the six months ended June 30, 2004.  The reduction of $118 million in cash used in investing activities is the result of an increase of $600 million in purchases of marketable debt securities and an increase of $718 million in proceeds from sales and maturities of marketable debt securities.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

 

7



 

Stock-Based Compensation.  The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method.  The Company recorded compensation expense of $7 million and $11 million in the three months ended June 30, 2004 and 2005, respectively.  The Company recorded compensation expense of $20 million in each of the six months ended June 30, 2004 and 2005.  If the fair value based method had been applied in measuring stock compensation expense, the pro forma effect on net income and net income per share would have been as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2004

 

June 30,
2005

 

June 30,
2004

 

June 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

As reported

 

$

112,512

 

$

754,689

 

$

213,724

 

$

959,249

 

Add: Stock compensation expense included in reported net income, net of related tax effects

 

4,284

 

6,568

 

11,827

 

12,248

 

Less: Stock compensation expense determined under fair value based method for all awards, net of related tax effects*

 

(54,245

)

(57,147

)

(122,499

)

(114,193

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net income

 

$

62,551

 

$

704,110

 

$

103,052

 

$

857,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

As reported - basic

 

$

0.08

 

$

0.54

 

$

0.16

 

$

0.69

 

As reported - diluted

 

$

0.08

 

$

0.51

 

$

0.15

 

$

0.65

 

 

 

 

 

 

 

 

 

 

 

Pro forma - basic

 

$

0.05

 

$

0.50

 

$

0.08

 

$

0.62

 

Pro forma - diluted

 

$

0.04

 

$

0.47

 

$

0.07

 

$

0.58

 

 

*                                         For the three and six months ended June 30, 2004, the stock compensation expense amount has been adjusted to reflect lower calculated fair values for employee stock options which resulted in an increase of $7 million ($0.01 per share – basic; $0.00 per share – diluted) and $10 million ($0.01 per share – basic and diluted), respectively, in pro forma net income. The adjustment was required as the Company’s estimate of the fair value of employee stock options was incorrectly based on a five-and-one-half year expected life rather than the three-and-one-half year expected life intended by management.

 

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected life of the options granted.  Because the Company’s options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options.

 

See “Recent Accounting Pronouncements” below regarding the impact of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”).

 

Recent Accounting Pronouncements

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R, which requires companies to recognize in the statement of operations all share-based payments to employees, including grants of employee stock options, based on their fair values.  Accounting for share-based compensation transactions using the intrinsic method supplemented by pro forma disclosures will no longer be permissible.  The new statement will be effective for public entities no later than the beginning of the first fiscal year beginning after June 15, 2005.  The Company will adopt the new statement on January 1, 2006.  The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements.  However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

 

8



 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, a replacement of Accounting Principles Board Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”).  SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle.  Previously, voluntary changes in accounting principles were generally required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements.  The Company does not believe adoption of SFAS 154 will have a material effect on its financial position, cash flows or results of operations.

 

Note 2—Basic and Diluted Net Income Per Share

 

Basic net income per share is computed using the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock that is subject to repurchase.  Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period.  Potential common shares consist of unvested restricted stock (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s zero coupon senior convertible notes (using the if-converted method).  For the three months ended June 30, 2004 and 2005, approximately 58 million and 55 million options to purchase common stock, respectively, were excluded from the calculation, as their exercise prices were greater than the average market price of the common stock during the periods.  For the six months ended June 30, 2004 and 2005, approximately 63 million and 61 million options to purchase common stock, respectively were excluded from the calculation, as their exercise prices were greater than the average market price of the common stock during the periods.  See Note 8—“Long-Term Debt” for additional information related to the Company’s zero coupon senior convertible notes.

 

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2004

 

June 30,
2005

 

June 30,
2004

 

June 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

112,512

 

$

754,689

 

$

213,724

 

$

959,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

1,347,897

 

1,398,690

 

1,338,245

 

1,392,870

 

Weighted average unvested restricted stock subject to repurchase

 

(438

)

(3,094

)

(438

)

(2,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic calculation

 

1,347,459

 

1,395,596

 

1,337,807

 

1,390,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Employee stock options

 

65,494

 

51,566

 

63,627

 

53,282

 

Convertible notes

 

36,585

 

36,585

 

36,585

 

36,585

 

Restricted stock

 

169

 

453

 

109

 

970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted calculation

 

1,449,707

 

1,484,200

 

1,438,128

 

1,481,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share—basic

 

$

0.08

 

$

0.54

 

$

0.16

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share—diluted

 

$

0.08

 

$

0.51

 

$

0.15

 

$

0.65

 

 

 

 

 

 

 

 

 

 

 

 

Note 3—Acquisitions

 

Acquisitions completed in 2004

 

3721.  On January 2, 2004, the Company completed the acquisition of all of the outstanding capital shares of 3721 Network Software Company Limited (“3721”), a Hong Kong-based software development company.  The acquisition combined the

 

9



 

Company’s global audience and 3721’s keyword search technology to enable the Company to continue improving its global search services.  These factors contributed to a purchase price in excess of the fair value of 3721’s net tangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

 

The total purchase price of approximately $95 million consisted of $92 million in cash consideration, including $41 million related to a contingent earnout, which was finalized and paid in the three months ended June 30, 2005, $2 million related to stock options exchanged, and direct transaction costs of $1 million.  The total cash consideration of approximately $92 million less cash acquired of $7 million resulted in a net cash outlay of $85 million.

 

The allocation of the purchase price to the assets acquired and liabilities assumed based on the fair values was as follows (in thousands):

 

Cash acquired

 

$

6,917

 

Other tangible assets acquired

 

4,498

 

Amortizable intangible assets

 

 

 

Trade name, trademark, and domain name

 

1,000

 

Customer, affiliate, and advertiser related relationships

 

7,600

 

Developed technology and patents

 

3,800

 

Goodwill

 

80,957

 

 

 

 

 

 

 

 

 

Total assets acquired

 

104,772

 

 

 

 

 

Liabilities assumed

 

(11,186

)

Deferred stock-based compensation

 

1,757

 

 

 

 

 

 

 

 

 

Total

 

$

95,343

 

 

 

 

 

 

The amortizable intangible assets have useful lives not exceeding five years.  No amount has been allocated to in-process research and development, and $81 million has been allocated to goodwill.  Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, and is not deductible for tax purposes.

 

Kelkoo.  On April 5, 2004, the Company completed the acquisition of a majority interest in Kelkoo S.A. (“Kelkoo”), a leading European online comparison shopping service.  In July 2004, the Company completed the acquisition of additional interests in Kelkoo, increasing the Company’s total ownership interest in Kelkoo to 100 percent.  The acquisition expanded the Company’s global commerce presence and together with the Company’s current services is expected to increase the Company’s competitive position in Europe.  These factors contributed to a purchase price in excess of the fair value of Kelkoo’s net tangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

 

The total purchase price of approximately $571 million consisted of $562 million in cash consideration, $6 million in incurred liabilities and direct transaction costs of $3 million.  The total cash consideration of approximately $562 million less cash acquired of $39 million resulted in a net cash outlay of $523 million.

 

The allocation of the purchase price to the assets acquired and liabilities assumed based on the fair values was as follows (in thousands):

 

Cash acquired

 

$

38,817

 

Other tangible assets acquired

 

24,068

 

Amortizable intangible assets

 

 

 

Trade name, trademark, and domain name

 

61,300

 

Customer, affiliate, and advertiser related relationships

 

36,100

 

Developed technology and patents

 

9,100

 

Goodwill

 

453,555

 

 

 

 

 

 

 

 

 

Total assets acquired

 

622,940