Yahoo 2013 Annual Report Download - page 71

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Therefore, expected volatility for the year ended December 31, 2013 was based on a market-based implied
volatility. The assumptions used in calculating the fair value of stock-based awards represent our best estimates,
but these estimates involve inherent uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based compensation expense could be materially
different in the future. In addition, we are required to estimate the expected pre-vesting award forfeiture rate, as
well as the probability that performance conditions that affect the vesting of certain awards will be achieved, and
recognize expense only for those shares expected to vest. Performance conditions are estimated and monitored
throughout the year. 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. 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 our 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 our consolidated
financial statements. See Note 14—“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 generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net
settlement of transactions with the same counterparty. We present our derivative assets and liabilities at their
gross fair values on the consolidated balance sheets.
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 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 securities and cash equivalents.
In 2013, we issued $1.4375 billion of Notes due 2018. We carry the Notes at face value less unamortized
discount on our balance sheet. The fair value of the Notes changes when the market price of our stock fluctuates.
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 $15 million and $33 million decrease in
the fair value of our available-for-sale debt securities as of December 31, 2013 and 2012, respectively.
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