Yahoo 2005 Annual Report Download - page 54

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48
activities of approximately $1.7 billion, proceeds of $1.0 billion from sales of marketable equity securities
and proceeds of $747 million from the exercise of employee stock options, offset by cash used for
acquisitions and a strategic investment of $1.7 billion, net cash used in structured stock repurchases
activities of $611 million, $388 million used for direct stock repurchases, and net capital expenditures of
$409 million.
As of December 31, 2005, approximately $45 million of earnings held by our foreign subsidiaries are
designated as indefinitely invested outside the United States. If these funds were required for our
operations in the United States, we would be required to accrue and pay additional taxes to repatriate
these funds. Currently, we do not anticipate a need to repatriate these funds to our United States
operations.
We invest excess cash predominantly in marketable debt securities that are liquid, of high-quality
investment grade, and the majority of which have effective maturities of less than two years. We also invest
excess cash to support our growing infrastructure needs and expand our operations, as consideration for
acquisitions, to repurchase shares of our stock and in other transactions. As of December 31, 2005, certain
of our marketable debt securities had a fair value below cost due to the changes in market rates of interest
and yields on these securities. We evaluate these investments periodically for possible other-than-
temporary impairment and review factors such as the length of time and extent to which fair value has
been below cost basis, the financial condition of the issuer, and our ability and intent to hold the
investment for a period of time which may be sufficient for an anticipated recovery in market value. We
have the intent and ability to hold these securities for a reasonable period of time sufficient for a
forecasted recovery of fair value up to (or beyond) the initial cost of the investment and expect to realize
the full value of all of these investments upon maturity or sale.
We expect to continue to generate positive cash flow from operations in 2006. Management believes
existing cash, cash equivalents and investments in marketable debt securities, together with any cash
generated from operations will be sufficient to meet normal operating requirements including capital
expenditures for the next 12 months. However, we may sell additional equity or debt securities or obtain
credit facilities to further enhance our liquidity position, and the sale of additional equity securities could
result in dilution to our stockholders.
Cash flow changes
Cash provided by operating activities is driven by our net income, adjusted for non-cash items, and non
operating gains and losses from sales of investments. Non-cash adjustments include depreciation and
amortization, tax benefits from stock options, earnings in equity interests, stock compensation expense. In
each of the three years ended December 31, 2005, 2004, and 2003, operating cash flows were reduced by
cash used for working capital needs, most significantly the increase in our accounts receivable balance,
mainly reflecting increases in revenues. The days of sales outstanding metric increased slightly over the
three years ended December 31, 2005. In the two years ended December 31, 2005, there were also
significant increases in accrued expenses and other liabilities that provided a positive working capital
change and cash flow from operations. These increases were mainly due to higher accrual balances for
TAC payments to affiliates arising from increased revenue.
Cash used in investing activities is primarily attributable to capital expenditures, net cash consideration for
acquisitions including our strategic investment in Alibaba and net purchases or sales of marketable debt
and equity securities. Our capital expenditures totaled $409 million, $246 million and $117 million in 2005,
2004 and 2003, respectively. Our capital expenditures have been primarily for purchases of information
technology assets to support our expanding offerings, our increased number of users and our international
growth. Our net cash consideration for acquisitions in 2005 included approximately $1.0 billion for our
investment in Alibaba, $500 million for the purchase of the outstanding interest in our joint ventures in