LinkedIn 2012 Annual Report Download - page 52

•Expected Term. The expected term was estimated using the simplified method allowed under SEC
guidance.
•Volatility. As we do not have a significant trading history for our common stock, the expected stock
price volatility for our common stock was estimated by taking the average historic price volatility
for industry peers based on daily price observations over a period equivalent to the expected term
of the stock option grants. Industry peers consist of several public companies in the technology
industry similar in size, stage of life cycle and financial leverage. We did not rely on implied
volatilities of traded options in our industry peers’ common stock because the volume of activity
was relatively low. We intend to continue to consistently apply this process using the same or
similar public companies until a sufficient amount of historical information regarding the volatility
of our own common stock share price becomes available, or unless circumstances change such that
the identified companies are no longer similar to us, in which case, more suitable companies whose
share prices are publicly available would be utilized in the calculation.
•Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with
maturities similar to the expected term of the options for each option group.
•Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to
pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of
zero.
Valuation of Goodwill and Intangible Assets
When we acquire businesses, we allocate the purchase price to the tangible assets and liabilities and
identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation
of the purchase price requires management to make significant estimates in determining the fair values of
assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are
based on information obtained from management of the acquired companies and historical experience.
These estimates can include, but are not limited to:
• the time and expenses that would be necessary to recreate the asset;
• the profit margin a market participant would receive;
• cash flows that an asset is expected to generate in the future; and
• discount rates.
These estimates are inherently uncertain and unpredictable, and if different estimates were used the
purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from
the allocation that we have made. In addition, unanticipated events and circumstances may occur which
may affect the accuracy or validity of such estimates, and if such events occur we may be required to
record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for
assumed liabilities.
Website and Internal-Use Software Development Costs
We capitalize certain costs related to the development of our website or software developed for
internal-use. In accordance with authoritative guidance, we begin to capitalize our costs to develop
software when preliminary development efforts are successfully completed, management has authorized
and committed project funding, and it is probable that the project will be completed and the software will
be used as intended. Such costs are amortized on a straight-line basis over the estimated useful life of the
related asset, generally estimated to be two to three years. Costs incurred prior to meeting these criteria
together with costs incurred for training and maintenance are expensed as incurred and recorded within
product development expenses on our consolidated statements of operations. We exercise judgment in
determining the point at which various projects may be capitalized, in assessing the ongoing value of the
capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the
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