Yahoo 2014 Annual Report Download - page 97

The fair value of the equity investments in Alibaba Group and Hortonworks will vary over time and is
subject to a variety of market risks including: company performance, macro-economic, regulatory,
industry, and systemic risks of the equity markets overall. Consequently, the carrying value of the
Company’s investment portfolio will vary over time as the value of the Company’s investments in
marketable securities, including Alibaba Group and Hortonworks changes.
Accounts receivable are typically unsecured and are derived from revenue earned from customers.
The Company performs ongoing credit evaluations of its customers and maintains allowances for
potential credit losses. Historically, such losses have been within management’s expectations.
The Company’s derivative instruments, including the convertible note hedge transactions, expose the
Company to credit risk to the extent that its derivative counterparties become unable to meet their
financial obligations under the terms of the agreements. The Company seeks to mitigate this risk by
limiting its derivative counterparties to major financial institutions and by spreading the risk across
several major financial institutions. In addition, the potential risk of loss with any one counterparty
resulting from this type of credit risk is monitored on an ongoing basis. See “Note 9—Foreign
Currency Derivative Financial Instruments” for additional information related to the Company’s
derivative instruments.
The Company also holds warrants in Hortonworks, which expose the Company to variability in fair
value based on changes in the stock price as an input to the Black-Scholes model.
As of December 31, 2013 and 2014, no one customer accounted for 10 percent or more of the
accounts receivable balance and no one customer accounted for 10 percent or more of the
Company’s revenue for 2012, 2013, or 2014. See Note 19 “Search Agreement with Microsoft
Corporation” for revenue under the Company’s Search and Advertising Services and Sales
Agreement (the “Search Agreement”) with Microsoft Corporation (“Microsoft”).
Comprehensive Income. Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income refers to revenue, expenses, and gains and
losses that under GAAP are recorded as an element of stockholders’ equity but are excluded from
net income. The Company’s other comprehensive income consists of foreign currency translation
adjustments from those subsidiaries or equity method investments where the local currency is the
functional currency, unrealized gains and losses on marketable securities classified as available-for-
sale, unrealized gains and losses on cash flow hedges, net changes in fair value of derivative
instruments related to our net investment hedges, as well as the Company’s share of its equity
investees’ other comprehensive income.
Foreign Currency. The functional currency of the Company’s international subsidiaries is evaluated
on a case-by-case basis and is often the local currency. The financial statements of these subsidiaries
are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, historical
rates of exchange for equity, and average rates of exchange for the period for revenue and expenses.
Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a
component of stockholders’ equity. In addition, the Company records translation gains (losses)
related to its foreign equity method investments in accumulated other comprehensive income (loss).
The Company records foreign currency transaction gains and losses, realized and unrealized and
foreign exchange gains and losses due to re-measurement of monetary assets and liabilities
denominated in non-functional currencies in other income, net in the consolidated statements of
income. The Company recorded $1 million, $6 million and $15 million of net losses in 2012, 2013 and
2014, respectively.
Cash and Cash Equivalents, Short- and Long-Term Marketable Securities. The Company invests its
excess cash in money market funds, time deposits, and liquid debt securities of the U.S. and foreign
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