Yahoo 2013 Annual Report Download - page 91

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Stock-Based Compensation Expense. The Company recognizes stock-based compensation expense, net of an
estimated forfeiture rate and therefore only recognizes compensation costs for those shares expected to vest over
the service period of the award. Stock-based awards are valued based on the grant date fair value of these awards;
the Company records stock-based compensation expense on a straight-line basis over the requisite service period,
generally one to four years.
Calculating stock-based compensation expense related to stock options requires the input of highly subjective
assumptions, including the expected term of the stock options, stock price volatility, and the pre-vesting
forfeiture rate of stock awards. The Company estimates the expected life of options granted based on historical
exercise patterns, which the Company believes are representative of future behavior. The Company estimates the
volatility of its common stock on the date of grant based on the implied volatility of publicly traded options on its
common stock, with a term of one year or greater. The Company believes that implied volatility calculated based
on actively traded options on its common stock is a better indicator of expected volatility and future stock price
trends than historical volatility. The assumptions used in calculating the fair value of stock-based awards
represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and the Company uses different assumptions, the
Company’s stock-based compensation expense could be materially different in the future. In addition, the
Company is 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 recognizes expense
for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience of the
Company’s stock-based awards that are granted and cancelled before vesting. See Note 14—“Employee
Benefits” for additional information.
The Company uses the “with and without” approach in determining the order in which tax attributes are utilized.
As a result, the Company recognizes a tax benefit from stock-based awards in additional paid-in capital only if an
incremental tax benefit is realized after all other tax attributes currently available to the Company have been
utilized. When tax deductions from stock-based awards are less than the cumulative book compensation expense,
the tax effect of the resulting difference (“shortfall”) is charged first to additional paid-in capital, to the extent of
the Company’s pool of windfall tax benefits, with any remainder recognized in income tax expense. The
Company determined that it had a sufficient windfall pool available through the end of 2013 to absorb any
shortfalls. In addition, the Company accounts for the indirect effects of stock-based awards on other tax
attributes, such as the research tax credit, through the consolidated statements of income.
Recent Accounting Pronouncements.
In 2013, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance clarifying the
accounting for the release of a cumulative translation adjustment into net income when a parent either sells a part
or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or
group of assets that is a nonprofit activity or a business within a foreign entity. The new standard is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The
Company does not anticipate that this adoption will have a significant impact on its financial position, results of
operations, or cash flows.
In 2013, the FASB issued a new accounting standard that will require the presentation of certain unrecognized
tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Balance Sheets when
a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new standard
requires adoption on a prospective basis in the first quarter of 2015; however, early adoption is permitted. The
Company does not anticipate that this adoption will have a significant impact on its financial position, results of
operations, or cash flows.
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