Yahoo 2011 Annual Report Download - page 62

different from what we have recorded in the current period. Changes in the estimated forfeiture rate can have a
significant effect on reported stock-based compensation expense, as the effect of adjusting the forfeiture rate for
all current and previously recognized expense for unvested awards is recognized in the period the forfeiture
estimate is changed. In addition, because many of our stock-based awards have vesting schedules of two or three
years cliff vests, a significant change in our actual or expected forfeiture experience will result in the adjustment
of stock-based compensation which was recorded in prior years for all unvested awards. If the actual forfeiture
rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated
forfeiture rate, which will result in a decrease to the expense recognized in the consolidated financial statements.
If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower
the estimated forfeiture rate, which will result in an increase to the expense recognized in the consolidated
financial statements. See Note 11—“Employee Benefits” in the Notes to the consolidated financial statements for
additional information.
Recent Accounting Pronouncements
See Note 1—“The Company and Summary of Significant Accounting Policies” in the Notes to the consolidated
financial statements, which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including changes in currency exchange rates and interest rates and
changes in the market values of our investments.
Interest Rate Exposure. Our exposure to market risk for changes in interest rates relates primarily to our cash and
marketable debt securities portfolio. We invest excess cash in money market funds, time deposits, and liquid debt
instruments of the U.S. and foreign governments and their agencies, U.S. municipalities, and high-credit
corporate issuers which are classified as marketable debt securities and cash equivalents.
Investments in fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities that have declined in market value due to changes in interest rates. As of
December 31, 2011 and 2010, we had investments in short-term marketable debt securities of approximately
$493 million and $1.4 billion, respectively. Such investments had a weighted-average yield of less than 1 percent
for both periods. As of December 31, 2011 and 2010, we had investments in long-term marketable debt securities
of approximately $474 million and $745 million, respectively. Such investments had a weighted average yield of
less than 1 percent for 2011 and approximately 1 percent for 2010. A hypothetical 100 basis point increase in
interest rates would result in a $7 million and $14 million decrease in the fair value of our available-for-sale debt
securities as of December 31, 2011 and 2010, respectively.
Foreign Currency Exposure. Our foreign currency exposure continues to increase as we grow internationally.
The objective of our foreign exchange risk management program is to identify material foreign currency
exposures and identify methods to manage these exposures to minimize the potential effects of currency
fluctuations on our reported consolidated cash flows and results of operations.
Economic Exposure
We transact business in various foreign currencies and have significant international revenues, as well as costs
denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates.
Our objective is to identify material foreign currency exposures and to manage these exposures to minimize the
potential effects of currency fluctuations on our reported consolidated cash flow and results of operations.
60