Yahoo 2003 Annual Report Download - page 48

Contractual Obligations. Contractual obligations at Decem- Fixed rate securities may have their fair market value
ber 31, 2003 are as follows (in millions): adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than
Payments due by period
expected if interest rates fall. Due in part to these factors,
Less than More than
our future investment income may fall short of expecta-
Total 1 year 1-3 years 3-5 years 5 years
tions due to changes in interest rates or we may suffer
losses in principal if forced to sell securities which have
Long-term debt (1) $ 750 $ – $ – $ 750 $ –
declined in market value due to changes in interest rates.
Operating lease obligations, net of
As of December 31, 2003, we had investments in debt
sublease income 229 36 52 37 104
securities with maturities between three months and one
Affiliate commitments (2) 92 74 17 1 –
year of approximately $596 million. Such investments had
Noncancelable purchase obligations 42 28 14 ––
a weighted-average yield of approximately 2.12 percent.
Total contractual obligations $ 1,113 $ 138 $ 83 $ 788 $ 104
Investments in debt securities with maturities between one
(1) The long-term debt matures in April 2008, unless converted into and five years of approximately $1.3 billion had a
Yahoo! common stock at a conversion price of $41.00 per share,
subject to adjustment upon the occurrence of certain events. Upon weighted average yield of approximately 2.37 percent. A
conversion, Yahoo! has the right to deliver cash in lieu of common hypothetical 100 basis point increase in interest rates
stock. See Note 10 – ‘‘Long-Term Debt’’ in the Financial State- would result in approximately $25 million decrease
ments for further information related to the long-term debt. (approximately one percent) in the fair value of our
(2) The Company is obligated to make payments under contracts to available-for-sale securities at December 31, 2003.
provide search services to its affiliates, which represents traffic acqui-
sition costs. The fair market value of our zero coupon senior converti-
ble notes is subject to interest rate risk. Generally, the fair
At December 31, 2003 and 2002, we did not have any market value of fixed interest rate debt will increase as
relationships with unconsolidated entities or financial part- interest rates fall and decrease as interest rates rise. The
nerships, such as entities often referred to as structured interest changes affect the fair market value but do not
finance or special purpose entities, which would have been impact our financial position, cash flows, or results of
established for the purpose of facilitating off-balance sheet operations. As of December 31, 2003, the fair value of
arrangements or other contractually narrow or limited the zero coupon senior convertible notes was approxi-
purposes. As such, we are not exposed to any financing, mately $966 million based on quoted market prices.
liquidity, market or credit risk that could arise if we had
engaged in such relationships. Foreign Currency Risk. International revenues from our foreign
subsidiaries accounted for approximately 17 percent of
Item 7a. Quantitative and Qualitative Disclosures about total revenues during 2003. International sales are made
Market Risk mostly from our foreign sales subsidiaries in their respec-
We are exposed to the impact of interest rate changes, tive countries and are typically denominated in the local
foreign currency fluctuations, and changes in the market currency of each country. These subsidiaries also incur
values of our investments. most of their expenses in the local currency. Accordingly,
all foreign subsidiaries use the local currency as their func-
Interest Rate Risk. Our exposure to market rate risk for tional currency.
changes in interest rates relates primarily to our invest-
ment portfolio. We have not used derivative financial Our international business is subject to risks, including,
instruments to hedge our investment portfolio. We invest but not limited to differing economic conditions, changes
excess cash in debt instruments of the U.S. Government in political climate, differing tax structures, other regula-
and its agencies, and in high-quality corporate issuers and, tions and restrictions, and foreign exchange rate volatility
by policy, limit the amount of credit exposure to any one when compared to the United States. Accordingly, our
issuer. We protect and preserve invested funds by limiting future results could be materially adversely impacted by
default, market and reinvestment risk. changes in these or other factors.
Investments in both fixed rate and floating rate interest Our exposure to foreign exchange rate fluctuations arises
earning instruments carry a degree of interest rate risk. in part from intercompany accounts in which costs
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