Chegg 2013 Annual Report Download - page 138

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CHEGG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14. Stock-Based Compensation
Total stock-based compensation expense recorded for employees and non-employees, is as follows (in
thousands):
Year Ended December 31,
2013 2012 2011
Cost of revenues ................................. $ 1,185 $ 542 $ 537
Technology and development ...................... 9,414 7,657 3,840
Sales and marketing .............................. 7,107 5,164 3,062
General and administrative ........................ 19,252 4,682 5,692
Total stock-based compensation expense ............. $36,958 $18,045 $13,131
We estimate the fair value of each stock option award using the Black-Scholes-Merton option-pricing
model, which utilizes the estimated fair value of our common stock and requires the input of the following
subjective assumptions:
Expected Term—The expected term for options granted to employees, officers, and directors is calculated
as the midpoint between the vesting date and the end of the contractual term of the options. The expected
term for options granted to consultants is determined using the remaining contractual life.
Expected Volatility—The expected volatility is based on the average volatility of similar public entities
within our peer group as our stock has not been publicly trading for a long enough period to rely on our own
expected volatility.
Expected Dividends—The dividend assumption is based on our historical experience. To date we have not
paid any dividends on our common stock.
Risk-Free Interest Rate—The risk-free interest rate used in the valuation method is the implied yield
currently available on the United States treasury zero-coupon issues, with a remaining term equal to the
expected life term of our options.
The following table summarizes the key assumptions used to determine the fair value of our stock options
granted to employees, officers, and directors:
Year Ended December 31,
2013 2012 2011
Expected term (years) ........................ 5.08 – 6.63 5.09 – 6.08 4.93 – 6.58
Expected volatility .......................... 55.72% – 73.18% 55.10% – 58.77% 47.44% – 76.51%
Dividend yield .............................. 0.00% 0.00% 0.00%
Risk-free interest rate ........................ 0.81% – 1.92% 0.65% – 1.16% 0.96% – 4.55%
Weighted-average grant-date fair value per share . . $6.20 $3.86 $4.67
The following key assumptions were used to determine the fair value of our 2013 ESPP which had its first
offering period open in November 2013: expected term 0.5 years, expected volatility 45%, dividend yield 0%,
risk-free interest rate 0.10% and weighted-average grant-date fair value per share of $3.44 per share.
We recognize only the portion of the option award granted to employees that is ultimately expected to vest
as compensation expense. Estimated forfeitures are determined based on historical data and management’s
expectation of exercise behaviors. Forfeiture rates and the resulting compensation expense are revised in
subsequent periods if actual forfeitures differ from the estimate.
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