Pandora 2016 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2016 Pandora annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would
more likely than not reduce the fair value of our single reporting unit below its carrying value. We evaluate indefinite-lived
intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely
than not that the asset is impaired. As of December€31, 2015,€no€impairment of goodwill or indefinite-lived intangible assets
has been identified.
Acquired finite-lived intangible assets are amortized over the estimated useful lives of the assets, which range
from€two€to€four€years. Acquired finite-lived intangible assets consist primarily of patents, customer relationships, developed
technology and trade names resulting from business combinations. We evaluate the recoverability of our intangible assets for
potential impairment whenever events or circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted
cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not
recoverable, the carrying amount of such assets is reduced to the fair value.
In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of finite-lived
intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be
amortized over the revised estimated useful life. We record the amortization of intangible assets to the financial statement line
item in our consolidated statement of operations that the asset directly relates to. To the extent that purchased intangibles are
used in revenue generating activities, we record the amortization of these intangible assets to cost of revenue.
Stock-Based Compensation
Stock-based compensation expenses are classified in the statement of operations based on the department to which the
related employee reports. We measure stock-based compensation expense for employees at the grant date fair value of the
award, and recognize expense on a straight-line basis over the requisite service period, which is generally the vesting period,
net of estimated forfeitures.
We generally estimate the grant date fair value of stock options using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model is affected by our stock price on the date of grant, the expected stock price volatility over
the expected term of the award, which is based on projected employee stock option exercise behaviors, the risk-free interest
rate for the expected term of the award and expected dividends.
Stock-based compensation expense is recorded net of estimated forfeitures in the statement of operations for only those
stock-based awards that we expect to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and
adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual
forfeitures differ from our initial estimates.
Stock-Based Compensation — Market Stock Units ("MSUs")€
We implemented a market stock unit program in March 2015 for certain key executives. Specifically, MSUs measure
Pandora’s total stockholder return ("TSR”) performance against that of the Russell 2000 Index across three performance
periods.
We have determined the grant-date fair value of the MSUs using a Monte Carlo simulation performed by a third-party
valuation firm. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market
conditions will be achieved. These variables include our expected stock price volatility over the expected term of the award,
actual and projected employee stock option exercise behaviors and the risk-free interest rate for the expected term of the award.
The variables used in these models are reviewed on an annual basis and adjusted, as needed. We recognize stock-based
compensation for the MSUs over the requisite service period using the accelerated attribution method.
Table of Contents
62