Yahoo 2012 Annual Report Download - page 74

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well as the probability that performance conditions that affect the vesting of certain awards will be achieved, and
only recognize expense for those shares expected to vest. We estimate this forfeiture rate based on historical
experience of our stock-based awards that are granted and cancelled before vesting. If our actual forfeiture rate is
materially different from our original estimates, the stock-based compensation expense could be significantly
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
year 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 13—“Employee Benefits” in the Notes to our consolidated financial statements
for additional information.
Recent Accounting Pronouncements
See Note 1—“The Company and Summary of Significant Accounting Policies” in the Notes to our 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. We may use derivative financial instruments to mitigate certain
risks in accordance with our investment and foreign exchange policies. We do not use derivatives or other
financial instruments for trading or speculative purposes.
Interest Rate Exposure
Our exposure to market risk for changes in interest rates impacts our costs associated with hedging, and primarily
relates 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.
A hypothetical 100 basis point increase in interest rates would result in a $33 million and $7 million decrease in
the fair value of our available-for-sale debt securities as of December 31, 2012 and 2011, 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. Counterparties to our derivative contracts are all major institutions.
We transact business in various foreign currencies and have significant international revenue, as well as costs
denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates.
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