Yahoo 2001 Annual Report Download - page 22

ticipating parties. We have guaranteed the residual value associated with the buildings under the lease
to the lessor of approximately 86% of the lessor’s carrying costs.
We have entered into various non-cancelable operating lease agreements for our Sunnyvale head-
quarters, sales offices throughout the U.S., and our international subsidiaries for original lease periods
ranging from 6 months to 13 years and expiring between 2002 and 2012.
In addition, we have entered into various sublease arrangements associated with our excess facili-
ties under the 2001 restructuring programs. Such subleases have terms extending through 2006 and
amounts estimated to be received have been included in determining the restructuring accrual.
Net lease commitments as of December 31, 2001 can be summarized as follows (in millions):
Gross lease Sublease Net lease
Year Ended December 31, commitments income commitments
2002 $26.3 $ (9.7) $16.6
2003 $26.5 $(10.7) $15.8
2004 $23.9 $(10.2) $13.7
2005 $21.1 $ (9.1) $12.0
2006 $11.9 $ (4.5) $ 7.4
Due after 5 years $15.3 $ — $15.3
We also have an agreement committing to lease two additional buildings adjacent to our headquarters in
Sunnyvale, California. Construction began in the fourth quarter of 2001 and the buildings are expected
to be ready for occupancy in the third quarter of 2003. Upon completion of the building construction, we
have committed to a 15 year lease obligation, with annual lease payments under the lease of approxi-
mately $5.1 million in year one, approximately $6.7 million in year two, and with increases of 3.5% in each
of the following years. After year one of the lease, we have the right to (i) purchase the buildings for approx-
imately $68.9 million, plus fees, (ii) restructure the lease arrangement, or (iii) continue leasing the build-
ings under the original agreement for the remaining fourteen years. These amounts are not included in
the table above.
Other Commitments. In the ordinary course of business we enter into various arrangements with vendors
and other business partners principally for marketing, bandwidth, and content arrangements. There are
no material commitments for these arrangements extending beyond 2002.
In March 2001, we announced that the Board of Directors had authorized a repurchase of up to
$500 million of our outstanding shares of Common Stock from time to time over the next two years,
depending on market conditions, share price and other factors. We may utilize equity instrument contracts
to facilitate the repurchase of Common Stock. Pursuant to this repurchase program, we have repurchased
a total of 5.4 million shares for approximately $60.0 million through December 31, 2001 and may con-
tinue to repurchase shares in future periods.
As discussed in “Acquisitions” above, we acquired HotJobs in February 2002. Under the terms of the
acquisition, we committed to pay approximately $206.6 million in cash (offset by cash to be acquired of
$55.1 million) and issue approximately 12 million shares of Common Stock. These amounts were sub-
stantially paid and issued, respectively, in February 2002. Refer to Note 12 – “Subsequent Event” for fur-
ther discussion of the HotJobs acquisition.
We have experienced a substantial increase in capital expenditures and operating lease arrange-
ments since our inception, which is consistent with our increased staffing and operational expansion, and
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we anticipate that this will continue in the future as business conditions merit. Additionally, we will con-
tinue to evaluate possible acquisitions of, or investments in businesses, products, and technologies that
are complementary to our business, which may require the use of cash. Management believes existing
cash and investments will be sufficient to meet operating requirements for at least the next twelve
months; however, we may sell additional equity or debt securities or obtain credit facilities to further
enhance our liquidity position. The sale of additional securities could result in additional dilution to our
stockholders.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes, foreign currency fluctuations, and changes in the
market values of our investments.
Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to the
our investment portfolio and our lease obligation pertaining to our headquarter facility in Sunnyvale, CA.
We have not used derivative financial instruments to hedge our investment portfolio. We invest excess
cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers
and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve invested
funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments carries a degree of
interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise
in interest rates, while floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates.
Rent obligations for our Sunnyvale, California office complex bear a direct relationship to the lessor’s
carrying costs of $258.4 million. Our rent expense is based on a floating LIBOR interest rate, which is
reset periodically and can be locked in for a maximum of six months. As a result, our rent expense is sub-
ject to fluctuations as the LIBOR interest rate changes.
Foreign Currency Risk. International revenues from our foreign subsidiaries accounted for approximately
17% of total revenues during 2001. International sales are made mostly from our foreign sales subsidiaries
in their respective countries and are typically denominated in the local currency of each country. These
subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries
use the local currency as their functional currency.
Our international business is subject to risks, including, but not limited to differing economic condi-
tions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility when compared to the United States. Accordingly, our future results could be
materially adversely impacted by changes in these or other factors.
Our exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which
costs incurred in the 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 U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may
vary from expectations and adversely impact overall expected profitability. The effect of foreign exchange
rate fluctuations for 2001 was not material.