Yahoo 2015 Annual Report Download - page 86

We transact business in various foreign currencies and have international revenue, as well as costs
denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency
exchange rates.
We had net realized and unrealized foreign currency transaction losses of $22 million, $15 million, and
$6 million for the years ended December 31, 2015, 2014 and 2013, respectively, which include the
impact of balance sheet hedging and remeasurements of foreign denominated assets and liabilities
on the balance sheets of the Company and our subsidiaries.
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.
A Value-at-Risk (“VaR”) sensitivity analysis was performed on all of our foreign currency derivative
positions to assess the potential impact of fluctuations in exchange rates. The VaR model uses a
Monte Carlo simulation to generate thousands of random price paths assuming normal market
conditions. The VaR is the maximum expected one day loss in fair value, for a given statistical
confidence level, to our foreign currency derivative positions due to adverse movements in rates. The
VaR model is used as a risk management tool and is not intended to represent either actual or
forecasted losses. Based on the results of the model using a 99 percent confidence interval, we
estimate the maximum one-day loss in the net investment hedge portfolio was $45 million and $22
million at December 31, 2015 and 2014, respectively. The maximum one-day loss in the cash flow
hedge portfolio was $3 million at both December 31, 2015 and 2014. The maximum one-day loss in the
balance sheet hedge portfolio was $11 million at December 31, 2015 compared to a $2 million loss at
both December 31, 2014 and 2013. Actual future gains and losses associated with our derivative
positions may differ materially from the sensitivity analysis performed as of December 31, 2015 due to
the inherent limitations associated with predicting the timing and amount of changes in foreign
currency exchange rates and our actual exposures and positions. In addition, the VaR sensitivity
analysis may not reflect the complex market reactions that may arise from the market shifts modeled
within this VaR sensitivity analysis.
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, Taiwan dollars and Singapore dollars. The statements of
operations 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, 2014, revenue ex-TAC for the
Americas segment for the year ended December 31, 2015 would have been higher than we reported
by $20 million; revenue ex-TAC for the EMEA segment would have been higher than we reported by
$36 million; and revenue ex-TAC for the Asia Pacific segment would have been higher than we
reported by $49 million. Using the foreign currency exchange rates from the year ended December
31, 2014, direct costs for the Americas segment for the year ended December 31, 2015 would have
been higher than we reported by $5 million; direct costs for the EMEA segment would have been
higher than we reported by $13 million; and direct costs for the Asia Pacific segment would have
been higher than we reported by $15 million.
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