Yahoo 2011 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2011 Yahoo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

Transaction Exposure
Our exposure to foreign currency transaction gains and losses is the result of assets and liabilities, (including
inter-company transactions) that are denominated in currencies other than the relevant entity’s functional
currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create
fluctuations in our reported consolidated financial position, cash flows and results of operations. We may enter
into derivative instruments, such as foreign currency forward contracts or other instruments to minimize the
short-term foreign currency fluctuations on such assets and liabilities. The gains and losses on the forward
contracts may not offset any or more than a portion of the transaction gains and losses on certain foreign
currency receivables, investments and payables recognized in earnings. Transaction gains and losses on these
foreign exchange contracts are recognized each period in other income, net included on the consolidated
statements of income. During the years ended December 31, 2011, 2010, and 2009, we recorded net realized and
unrealized foreign currency transaction gains of $9 million and $13 million, and a transaction loss of $1 million,
respectively. As of December 31, 2011, we had an outstanding forward contract with a notional value equivalent
of approximately $92 million, which will mature on April 30, 2012.
Translation Exposure
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 U.S. dollars in consolidation. If there is a change in
foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars
results in a gain or loss which is recorded as a component of accumulated other comprehensive income which is
part of stockholders’ equity.
Revenue ex-TAC and related expenses generated from our international subsidiaries are generally denominated
in the currencies of the local countries. Primary currencies include Australian dollars, British pounds, Euros,
Japanese Yen, Korean won, and Taiwan dollars. The statements of income of our international operations are
translated into U.S. dollars at exchange rates indicative of market rates during each applicable period. To the
extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-
denominated transactions results in reduced consolidated revenue and operating expenses. Conversely, our
consolidated revenue and operating expenses will increase if the U.S. dollar weakens against foreign currencies.
Using the foreign currency exchange rates from the year ended December 31, 2010, revenue ex-TAC for the
Americas segment for the year ended December 31, 2011 would have been lower than we reported by $6 million,
revenue ex-TAC for the EMEA segment would have been lower than we reported by $16 million, and revenue
ex-TAC for the Asia Pacific segment would have been lower than we reported by $59 million. Using the foreign
currency exchange rates from the year ended December 31, 2010, direct costs for the Americas segment for the
year ended December 31, 2011 would have been lower than we reported by $2 million, direct costs for the
EMEA segment would have been lower than we reported by $5 million, and direct costs for the Asia Pacific
segment would have been lower than we reported by $15 million.
Investment Exposure. We are exposed to investment risk as it relates to changes in the market value of our
investments. We have investments in marketable debt securities and equity instruments of public and private
companies.
Our cash and marketable debt securities investment policy and strategy attempts primarily to preserve capital and
meet liquidity requirements. A large portion of our cash is managed by external managers within the guidelines
of our investment policy. We protect and preserve invested funds by limiting default, market, and reinvestment
risk. To achieve this objective, we maintain our portfolio of cash and cash equivalents and short-term and long-
term investments in a variety of liquid fixed income securities, including both government and corporate
obligations and money market funds. As of December 31, 2011 and 2010, net unrealized gains and losses on
these investments were not material.
61