• the acquired company's trade name, trademark and existing customer
relationship, as well as assumptions about the period of time the acquired
trade name and trademark will continue to be used in our offerings;
• uncertain tax positions and tax related valuation allowances assumed; and
• discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Stock-Based Options and Awards. We recognize the fair value of our stock options and awards on a straight-line basis over the requisite service period of the option or award which is the vesting term of generally four years for stock options and restricted stock awards and one year for shares issued pursuant to our Employee Stock Purchase Plan ("ESPP"). The fair value of each option or ESPP share or stock purchase right is estimated on the date of grant using the Black-Scholes option pricing model. The estimated forfeiture rate applied is based on historical forfeiture rates. We evaluate the forfeiture rates at least annually, or when events or circumstances indicate a change may be needed. This may cause a fluctuation in our stock-based compensation in the period of change. Inputs into the Black-Scholes option pricing model include:
• The estimated life for the stock options which is estimated based on an
actual analysis of expected life. The estimated life for shares issued pursuant to our ESPP is based on the two purchase periods within the 12 month offering period;
• The risk free interest rate which is based on the rate for a U.S.
government security with the same estimated life at the time of the option
grant and the stock purchase rights; • The future stock price volatility which is estimated considering both our
observed option-implied volatilities and our historical volatility
calculations. We believe this is the best estimate of the expected
volatility over the expected life of our stock options and stock purchase
• The probability of performance conditions that effect the vesting of
certain awards being achieved. Expense is only recognized for those shares
expected to vest.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the condensed consolidated statements of operations in the period that includes the enactment date. At each of the interim financial reporting periods, we compute our tax provision by applying an estimated annual effective tax rate to year to date ordinary income and adjust the provision for discrete tax items recorded in the same period. The estimated annual effective tax rate at each interim period represents the best estimate based on evaluations of possible future transactions and may be subject to subsequent refinement or revision. 40