ServiceMagic 2011 Annual Report Download - page 54

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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. At December 31, 2011, the Company has unrecognized tax benefits of $462.8 million, including
interest. Changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and
amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the
Company are recorded in the period they become known.
Stock Based Compensation
As disclosed in the notes to the consolidated financial statements, the Company estimated the fair value of stock options issued in 2011,
2010 and 2009 using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 2.3%,
2.4% and 2.1%, respectively, a dividend yield of zero and volatility factors of 30%, 30% and 59%, respectively, based on the historical stock
price volatilities of IAC for 2011 and 2010 and peer companies operating in the same industry sector as IAC for 2009 and a weighted average
expected term of the stock options of 6.1 years, 5.6 years and 4.9 years, respectively. The historical stock price volatilities in 2009 of peer
companies was used due to the lack of sufficient historical IAC stock price volatilities subsequent to the 2008 spin-off. For stock options,
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 expensed over the remaining vesting term. The impact on non-cash compensation expense for the year ended
December 31, 2011, 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 term of the outstanding options would be an increase of $1.9 million, $9.1 million, and $5.7 million, respectively.
The Company also issues RSUs and performance-based RSUs. For RSUs 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 expense over the vesting term. For performance-based RSUs 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 over the
vesting term when the performance targets are considered probable of being achieved.
Marketable Securities
The Company invests in certain marketable securities, which primarily consist of short-to-intermediate-term debt securities issued by states
of the U.S. and subdivisions thereof and investment grade corporate issuers. The unrealized gains and losses on marketable securities, net of tax,
are included in accumulated other comprehensive income as a separate component of shareholders' equity. The specific-identification method is
used to determine the cost of securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive
income into earnings.
The Company employs a methodology that considers available evidence in evaluating potential other-than-temporary impairments of its
investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-
than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair
value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer, and whether it is not more likely
than not that the Company will be required to sell the security before the recovery of the amortized cost basis, which may be maturity. If a
decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in current earnings and a new cost basis in the
investment is established. Future events may result in reconsideration of the nature of losses as other-than-temporary and market and other
factors may cause the value of the Company's investment in marketable securities to decline. During 2011 and 2010, the Company did not
consider any of its marketable securities to be other-than-temporarily impaired.
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