Enom 2014 Annual Report Download - page 47

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44
is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations.
We elected to treat stock-based payment awards, other than performance awards, with graded vesting schedules and time-based
service conditions as a single award and recognize stock-based compensation expense on a straight-line basis (net of estimated
forfeitures) over the requisite service period. Stock-based compensation expenses are classified in the consolidated statement of
operations based on the department to which the related employee reports. Our stock-based awards are comprised principally of stock
options, restricted stock units and, in the past, restricted stock awards.
We account for stock-based payment awards and stock options issued to non-employees in accordance with the guidance for
equity-based payments to non-employees. Stock option awards to non-employees are accounted for at fair value using the Black-
Scholes-Merton option pricing model. We believe that the fair value of stock-based payment awards and stock options is more reliably
measured than the fair value of the services received. The fair value of the unvested portion of the options granted to non-employees is
re-measured each period. The resulting increase in value, if any, is recognized as expense during the period the related services are
rendered.
The Black-Scholes-Merton option pricing model requires management to make assumptions and to apply judgment in
determining the fair value of our awards. The most significant assumptions and judgments include the expected volatility, expected
term of the award and estimated forfeiture rates.
We estimated the expected volatility of our awards from the historical volatility of selected public companies within the Internet
and media industry with comparable characteristics to Demand Media, including similarity in size, lines of business, market
capitalization, revenue and financial leverage. From our inception through December 31, 2008, the weighted average expected life of
options was calculated using the simplified method as prescribed under guidance by the SEC. This decision was based on the lack of
relevant historical data due to our limited experience and the lack of an active market for our common stock. Effective January 1,
2009, we calculated the weighted average expected life of our options based upon our historical experience of option exercises
combined with estimates of the post-vesting holding period. The-risk free interest rate is based on the implied yield currently available
on U.S. Treasury issues with terms approximately equal to the expected life of the option. The expected dividend rate is zero as we
currently have no history or expectation of paying cash dividends on our common stock. The forfeiture rate is established based on
applicable historical forfeiture patterns adjusted for any expected changes in future periods.