ServiceMagic 2009 Annual Report Download - page 55

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Table of Contents
evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely of being realized upon ultimate settlement. This measurement step is inherently difficult and
requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when
evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate
actual outcomes.
Stock Based Compensation
As disclosed in the notes to the consolidated financial statements, the Company estimated the fair value of stock options issued in 2009 and
2008 using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 2.1% and 2.6%,
respectively, a dividend yield of zero and volatility factors of 59% and 47%, respectively, based on the historical stock price volatilities of peer
companies operating in the same industry sector as IAC and a weighted average expected life of the stock options of 4.9 years and 4.4 years,
respectively. The historical stock price volatilities of peer companies is used due to the lack of sufficient historical IAC stock price volatilities
subsequent to the Spin-Off. There were no stock options granted by the Company during the year ended December 31, 2007. For stock options
issued since 2003, including unvested stock options assumed in acquisitions, the value of the stock option is measured at the grant date (or
acquisition date, if applicable) at fair value and amortized over the remaining vesting term. The impact on non-cash compensation expense for
the year ended December 31, 2009, assuming a 1% increase in the risk-free interest rate, a 10% increase in the volatility factor, and a one year
increase in the weighted average expected life of the outstanding options would be an increase of $1.5 million, $7.7 million, and $4.7 million,
respectively. The Company also issues restricted stock units and performance stock units. For restricted stock units issued, the value of the
instrument is measured at the grant date as the fair value of IAC common stock and amortized ratably as non-cash compensation expense over
the vesting term. For performance stock units issued, the value of the instrument is measured at the grant date as the fair value of IAC common
stock and expensed as non-cash compensation when the performance targets are considered probable of being achieved.
50