eBay 2013 Annual Report Download - page 85

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We calculated the fair value of each restricted stock award based on our stock price on the date of grant. We calculated the fair value of
each stock option award on the date of grant using the Black-Scholes option pricing model. The determination of fair value of stock option
awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of additional
variables described below. The use of a Black-Scholes model requires extensive actual employee exercise behavior data and a number of
assumptions, including expected life, expected volatility, risk-free interest rate and dividend yield. As a result, future stock-based compensation
expense may differ from our historical amounts. The weighted-average grant-date fair value of stock options granted during 2013 , 2012 and
2011 was $15.39 , $11.21 and $9.87 per share, respectively, using the Black-Scholes model with the following weighted-average assumptions:
Our computation of expected volatility for 2013 , 2012 and 2011 was based on a combination of historical and market-based implied
volatility from traded options on our stock. Our computation of expected life was determined based on historical experience of similar awards,
giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The
interest rate for periods within the contractual life of the award was based on the U.S. Treasury yield curve in effect at the time of grant. The
estimation of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current
estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when
estimating forfeitures, including employee class and historical experience.
Recent Accounting Pronouncements
See "Note 1 - The Company and Summary of Significant Accounting Policies" to the consolidated financial statements included in this
report, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exposure
We have significant operations internationally that are denominated in foreign currencies, primarily the Euro, British pound, Korean won
and Australian dollar, subjecting us to foreign currency risk which may adversely impact our financial results. We transact business in various
foreign currencies and have significant international revenues as well as costs. In addition, we charge our international subsidiaries for their use
of intellectual property and technology and for certain corporate services provided by eBay and by PayPal. Our cash flow, results of operations
and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations and we
may record significant gains or losses due to foreign currency fluctuations and related hedging activities.
We have a foreign exchange exposure management program that aims to identify material foreign currency exposures, to manage these
exposures, and to reduce the potential effects of currency fluctuations on our reported consolidated cash flows and results of operations through
the purchase of foreign currency exchange contracts. These foreign currency exchange contracts are accounted for as derivative instruments. For
additional details related to our derivative instruments, please see “Note 8 - Derivative Instruments” to the consolidated financial statements
included in this report.
80
Year Ended December 31,
2013
2012
2011
Risk-free interest rate
0.6
%
0.7
%
1.2
%
Expected life (in years)
4.1
4.0
3.8
Dividend yield
—
%
—
%
—
%
Expected volatility
34
%
38
%
38
%