Yahoo 2003 Annual Report Download - page 49

incurred in the United States are charged to our foreign The primary objective of our investment activities is to
sales subsidiaries. These intercompany accounts are typi- preserve principal while at the same time maximizing
cally denominated in the functional currency of the for- yields without significantly increasing risk. To achieve this
eign subsidiary. We are also exposed to foreign exchange objective, we maintain our portfolio of cash equivalents,
rate fluctuations as the financial statements of foreign sub- short-term and long-term investments in a variety of secu-
sidiaries are translated into U.S. dollars in consolidation. rities, including both government and corporate obliga-
As exchange rates vary, these results, when translated, may tions and money market funds. As of December 31, 2003
vary from expectations and adversely impact overall the net unrealized gains on these investments were not
expected profitability. The effect of foreign exchange rate material.
fluctuations for 2003 was not material.
We are exposed to market risk as it relates to changes in
Investment Risk. We have invested in equity instruments of the market value of our investments. We invest in equity
privately-held companies for business and strategic pur- instruments of public companies, certain of which may be
poses. These investments are included in other long-term classified as derivatives, for business and strategic purposes
assets and are accounted for under the cost method when and have classified these securities as available-for-sale.
ownership is less than 20 percent and we do not have the These available-for-sale equity investments are subject to
ability to exercise significant influence over operations. significant fluctuations in fair value due to the volatility of
Since our initial investment, certain of these investments the stock market and the industries in which these com-
in privately-held companies have become marketable panies participate. We have realized gains and losses from
equity securities upon the investees completing initial both the sale of investments, as well as mergers and acqui-
public offerings. Such investments are subject to signifi- sitions of companies in which we have invested. As of
cant fluctuations in fair market value due to the volatility December 31, 2003, we had available-for-sale equity
of the stock market and are recorded as long-term invest- investments with a fair value of approximately $4 million
ments. For these investments in public and privately-held and a cost basis of approximately $4 million. The net
companies, our policy is to monitor these investments for unrealized gains have been recorded net of deferred taxes
impairment by considering current factors including eco- as a separate component of stockholders’ equity and gains
nomic environment, market conditions and operational on derivatives of approximately $1 million have been
performance and other specific factors relating to the busi- recorded in other income on the statement of operations.
ness underlying the investment, and record reductions in Our objective in managing exposure to stock market fluc-
carrying value when necessary. An impairment in the car- tuations is to minimize the impact of stock market
rying value of our privately held investments of 5 percent declines to earnings and cash flows. However, continued
would result in a decrease in the carrying value of our market volatility, as well as mergers and acquisitions, have
privately held investments of approximately $2 million. the potential to have a material non-cash impact on our
operating results in future periods.
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