Carbonite 2011 Annual Report Download - page 70
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Table of Contents
Carbonite, Inc.
The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model, which further requires the use
of highly subjective estimates and assumptions, including expected stock price volatility, expected term of an award, risk-free interest rate, and expected
dividend yield.
The assumptions used to estimate the fair value of the stock options using the Black-Scholes option-pricing model were as follows for the years
ended December 31, 2011, 2010, and 2009:
Risk
-Free Interest Rate
The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining
maturities similar to the expected term of the options.
Expected Dividend Yield
The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is
assumed to be zero in the option valuation model.
Expected Volatility
Until the Company’s IPO, as there had been no public market for the Company’s common stock, the Company determined the volatility for
options granted based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. Beginning at the
time of the Company’s IPO, the expected volatility of options granted has been determined using a combination of the historical volatility measures of
this peer group of companies for a period equal to the expected term of the option.
Expected Term
The Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment
termination behavior for its stock option grants. As a result, for stock option grants made during the years ended December 31, 2011, 2010, and 2009 the
expected term was estimated using the “simplified method.” The simplified method is based on the average of the vesting tranches and the contractual
life of each grant.
Forfeitures
The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ
from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures, and records stock-based compensation expense only
for those awards that are expected to vest.
66
Years Ended December 31,
2011
2010
2009
Weighted-average fair value of common stock
$12.20
$7.32
$2.08
Risk
-
free interest rate
2.12% to 2.4%
1.45% to 3.04%
2.09% to 3.04%
Expected dividend yield
—
%
—
%
—
%
Expected volatility
53% to 62%
61% to 64%
70% to 74%
Expected term (in years)
5.8 to 6.1
6.1
5 to 6.1