Yahoo 2015 Annual Report Download - page 132

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the underlying hedged revenue is recognized. Any ineffective portions of net investment hedges and
cash flow hedges are recorded in other income (expense), net on the Company’s consolidated
statements of operations. For balance sheet hedges, changes in the fair value are recorded in other
income (expense), net on the Company’s consolidated statements of operations.
The Company enters into master netting arrangements, which are designed to reduce credit risk by
permitting net settlement of foreign exchange contracts with the same counterparty, subject to
applicable requirements. The Company presents its derivative assets and liabilities at their gross fair
values on the consolidated balance sheets. The Company is not required to pledge, and is not
entitled to receive, cash collateral related to these derivative transactions.
Designated as Hedging Instruments
Net Investment Hedges. The Company currently hedges, on an after-tax basis, a portion of its net
investment in Yahoo Japan with forward contracts and option contracts to reduce the risk that its
investment in Yahoo Japan will be adversely affected by foreign currency exchange rate fluctuations.
The total of the after-tax net investment hedge was less than the Yahoo Japan investment balance as
of both December 31, 2014 and 2015. As such, the net investment hedge was considered to be
effective.
Cash Flow Hedges. The Company entered into foreign currency forward contracts designated as
cash flow hedges of varying maturities through January 31, 2017. The cash flow hedges were
considered to be effective as of December 31, 2013, 2014 and 2015. All of the forward contracts
designated as cash flow hedges that were settled were reclassified to revenue within fiscal years
2013, 2014 and 2015, and the Company recognized the hedge forecasted revenue related to these
contacts as of December 31, 2013, 2014 and 2015. All current outstanding cash flow hedges are
expected to be reclassified into revenue during 2016. For the years ended December 31, 2013, 2014
and 2015, the amounts recorded in other income (expense), net as a result of hedge ineffectiveness
were not material.
Not Designated as Hedging Instruments
Balance Sheet Hedges. The Company hedges certain of its net recognized foreign currency assets
and liabilities with foreign exchange forward contracts to reduce the risk that its earnings and cash
flows will be adversely affected by changes in foreign currency exchange rates. These derivative
instruments hedge assets and liabilities, including intercompany transactions, which are denominated
in foreign currencies.
Notional amounts of the Company’s outstanding derivative contracts as of December 31, 2013, 2014
and 2015 (in millions) were as follows:
December 31,
2013 2014 2015
Derivatives designated as hedging instruments:
Net investment hedge forward and option contracts
$1,341 $1,647 $1,150
Cash flow hedge forwards
$56$222$75
Derivatives not designated as hedging instruments:
Balance sheet hedges
$ 393 $ 243 $ 225
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