Yahoo 2007 Annual Report Download - page 59

4.3 percent, respectively. As of December 31, 2007 and 2006, we had investments in long-term marketable debt
securities of approximately $362 million and $936 million, respectively. Such investments had a weighted average
yield of approximately 5.0 percent and 4.6 percent, respectively. A hypothetical 100 basis point increase in interest
rates would result in an approximate $7 million and $16 million decrease (approximately 1 percent), respectively, in
the fair value of our available-for-sale debt securities as of December 31, 2007 and 2006.
The fair market value of the zero coupon senior convertible notes (the “Notes”) issued by Yahoo! and due in April
2008 is subject to interest rate risk and market risk due to the convertible feature of the Notes. Generally, the fair
market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair
market value of the Notes will also increase as the market price of Yahoo! stock increases and decrease as the market
price falls. The interest and market value changes affect the fair market value of the Notes but do not impact our
consolidated financial position, cash flows, or results of operations. As of December 31, 2007 and 2006, the fair
value of the Notes was approximately $880 million and $1.0 billion, respectively, based on quoted market prices.
Foreign Currency Risk. International revenues accounted for approximately 32 percent of total revenues in both
2007 and 2006. International revenues in 2007 increased $182 million, or 9 percent, as compared to 2006. The
growth in our international operations has increased our exposure to foreign currency fluctuations. Revenues and
related expenses generated from our international subsidiaries are generally denominated in the functional
currencies of the local countries. Primary currencies include Euros, British Pounds, Japanese Yen, Korean
Won, Taiwan Dollars, Australian Dollars, and Canadian Dollars. The statements of income of our international
operations are translated into United States dollars at the average exchange rates in each applicable period. To the
extent the United States dollar strengthens against foreign currencies, the translation of these foreign currency
denominated transactions results in reduced revenues, operating expenses, and net income for our International
segment. Similarly, our revenues, operating expenses, and net income will increase for our International segment if
the United States dollar weakens against foreign currencies. Using the average foreign currency exchange rates
from 2006, our international revenues for 2007 would have been lower than we reported by approximately
$87 million and our international segment operating income before depreciation, amortization, and stock-based
compensation expense would have been lower than we reported by $16 million.
We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign
subsidiaries and our investments in equity interests into United States dollars in consolidation. If there is a change in
foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into United States
dollars will lead to a translation gain or loss which is recorded as a component of accumulated other comprehensive
income which is part of stockholders’ equity. In addition, we have certain assets and liabilities that are denominated in
currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets
and liabilities create fluctuations that will lead to a transaction gain or loss. We recorded foreign currency transaction
gains and losses, realized and unrealized in other income, net on the consolidated statements of income, of approximately
$8 million of net losses in 2005 and net gains of $5 million and $7 million in 2006 and 2007, respectively.
Investment Risk. The primary objective of our fixed income investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our
portfolio of cash equivalents and current and long-term investments in a variety of securities, including both
government and corporate obligations and money market funds. As of December 31, 2007 and 2006, net unrealized
gains and losses on these investments were not material.
We are exposed to market risk as it relates to changes in the market value of our investments. We invest in equity
instruments of public companies for business and strategic purposes and have classified these securities as
available-for-sale. These available-for-sale equity investments are subject to significant fluctuations in fair value
due to the volatility of the stock market and the industries in which these companies participate. We have realized
gains and losses from the sale of investments, as well as impairment charges on some of our investments. In 2007,
we did not record any impairment losses on our available-for-sale equity investments, compared to $4 million
recorded in 2006. Our investments in available-for-sale equity securities amounted to $126 million and $114 mil-
lion, respectively, as of December 31, 2007 and 2006 (including $69 million and $61 million, respectively, related to
our investment in Gmarket Inc.). Our objective in managing exposure to stock market fluctuations is to minimize
the impact of stock market declines to earnings and cash flows. Using a hypothetical reduction of 10 percent in the
stock price of these equity securities, the fair value of our equity investments would decrease by approximately
$13 million and $11 million as of December 31, 2007 and 2006, respectively.
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