Yahoo 2008 Annual Report Download - page 57

determined by our management to be commensurate with the risk inherent in our business model. Our estimates
of future cash flows attributable to our intangible assets require significant judgment based on our historical and
anticipated results and are subject to many factors. Different assumptions and judgments could materially affect
estimated future cash flows relating to our intangible assets which could trigger impairment. No impairments of
intangible assets were identified during any of the periods presented.
Investments in Equity Interests. We account for investments in the common stock of entities in which we have
the ability to exercise significant influence but do not own a majority equity interest or otherwise control using
the equity method. In accounting for these investments we record our proportionate share of the entities’ net
income or loss, one quarter in arrears.
We review our investments in equity interests for impairment whenever events or changes in business circumstances
indicate that the carrying value of the investment may not be fully recoverable. Investments identified as having an
indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this
analysis requires estimating the fair value of the investment. The determination of fair value of the investment involves
considering factors such as the stock prices of public companies in which we have an equity investment, current
economic and market conditions, the operating performance of the companies, including current earnings trends and
forecasted cash flows, and other company and industry specific information. The fair value determination, particularly
for investments in privately-held companies, requires significant judgment to determine appropriate estimates and
assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the
investments and the determination of whether any identified impairment is other-than-temporary.
Stock-Based Compensation Expense. Effective January 1, 2006, we adopted SFAS 123R using the modified
prospective method and therefore have not restated prior periods’ results. Under the fair value recognition provisions of
SFAS 123R, we recognize stock-based compensation expense net of an estimated forfeiture rate and therefore only
recognize compensation expense for those shares expected to vest over the service period of the award.
Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the
expected term of the stock-based options, stock price volatility, and the pre-vesting award forfeiture rate. We
estimate the expected life of options granted based on historical exercise patterns, which we believe are
representative of future behavior. We estimate the volatility of our common stock on the date of grant based on
the implied volatility of publicly traded options on our common stock, with a term of one year or greater. We
believe that implied volatility calculated based on actively traded options on our common stock is a better
indicator of expected volatility and future stock price trends than historical volatility. Therefore, expected
volatility for the year ended December 31, 2008 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 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. 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 years cliff vests, a
significant change in our actual or expected forfeiture experience will result in the reversal 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
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