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74
Thefollowingtablesummarizesstockbasedcompensationincludedinourconsolidatedbalance
sheetsasacomponentofsoftwaredevelopment(amountsinmillions):
Software
development
BalanceatDecember31,2007................................................................
$—
Stockbasedcompensationexpensecapitalizedanddeferred
duringperiod................................................................................................
54
Amortizationofstockbasedcompensationexpense................................
(12)
BalanceatDecember31,2008................................................................
42
Stockbasedcompensationexpensecapitalizedanddeferred
duringperiod................................................................................................
102
Amortizationofstockbasedcompensationexpense................................
(90)
BalanceatDecember31,2009................................................................
$54
MethodandAssumptionsonValuationofStockOptions
Ouremployeestockoptionshavefeaturesthatdifferentiatethemfromexchangetradedoptions.
Thesefeaturesincludelackoftransferability,earlyexercise,vestingrestrictions,preandpostvesting
terminationprovisions,blackoutdates,andtimevaryinginputs.Inaddition,someoftheoptionshavenon
traditionalfeatures,suchasacceleratedvestinguponthesatisfactionofcertainperformanceconditionsthat
mustbereflectedinthevaluation.Abinomiallatticemodelwasselectedbecauseitisbetterableto
explicitlyaddressthesefeaturesthanclosedformmodelssuchastheBlackScholesmodel,andisableto
reflectexpectedfuturechangesinmodelinputs,includingchangesinvolatility,duringtheoption’s
contractualterm.
Wehaveestimatedexpectedfuturechangesinmodelinputsduringtheoption’scontractualterm.
Theinputsrequiredbyourbinomiallatticemodelincludeexpectedvolatility,riskfreeinterestrate,risk
adjustedstockreturn,dividendyield,contractualterm,andvestingschedule,aswellasmeasuresof
employees’forfeiture,exercise,andpostvestingterminationbehavior.Statisticalmethodswereusedto
estimateemployeerankspecificterminationrates.Theseterminationrates,inturn,wereusedtomodelthe
numberofoptionsthatareexpectedtovestandpostvestingterminationbehavior.Employeerankspecific
estimatesofExpectedTimeToExercise(“ETTE”)wereusedtoreflectemployeeexercisebehavior.ETTE
wasestimatedbyusingstatisticalprocedurestofirstestimatetheconditionalprobabilityofexercise
occurringduringeachtimeperiod,conditionalontheoptionsurvivingtothattimeperiodandthenusing
thoseprobabilitiestoestimateETTE.Themodelwascalibratedbyadjustingparameterscontrolling
exerciseandpostvestingterminationbehaviorsothatthemeasuresoutputbythemodelmatchedvaluesof
thesemeasuresthatwereestimatedfromhistoricaldata.
Thefollowingtablespresenttheweightedaverageassumptionsandtheweightedaveragefairvalueat
grantdateusingthebinomiallatticemodel:
Employeeand
directoroptions
Employeeand
directoroptions
Fortheyearended
December31,2009
Fortheyearended
December31,2008
Expectedlife(inyears).............................................................................................
5.95
5.28
Riskfreeinterestrate................................................................................................
3.63%
3.98%
Volatility...................................................................................................................
53.00%
53.88%
Dividendyield................................................................................................
—
—
Weightedaveragefairvalueatgrantdate................................................................
$5.40
$5.92
UponconsummationoftheBusinessCombinationthefairvalueofActivision,Inc.’sstockawards
wasdeterminedusingthefairvalueofActivision,Inc.’scommonstockof$15.04pershare,whichwasthe
closingpriceatJuly9,2008,andusingabinomiallatticemodelwiththefollowingassumptions:
(a)varyingvolatilityrangingfrom42.38%to51.50%,(b)ariskfreeinterestrateof3.97%,(c)anexpected