eBay 2008 Annual Report Download - page 113

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Stock Option Valuation Assumptions
We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing
model. The following weighted-average assumptions were used for each respective period:
2006 2007 2008
Year Ended December 31,
Risk-free interest rates ............................... 4.7% 4.5% 2.3%
Expected life ...................................... 3.0years 3.5 years 3.8 years
Dividend yield ..................................... 0% 0% 0%
Expected volatility .................................. 36% 37% 34%
Our computation of expected volatility is based on a combination of historical and market-based implied
volatility from traded options on our stock. Our computation of expected life was determined based on historical
experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of
the award is based on the U.S. Treasury yield curve in effect at the time of grant.
Stock-Based Compensation Expense
The following table presents details of total stock-based compensation expense that is included in each line
item on our consolidated statement of income (in thousands):
2006 2007 2008
Year Ended December 31,
Cost of net revenues................................. $ 32,981 $ 37,009 $ 43,417
Salesandmarketing................................. 96,547 81,299 94,314
Product development ................................ 81,489 76,002 95,396
General and administrative ............................ 106,393 107,503 118,915
Restructuring...................................... — — 1,281
Total stock-based compensation expense .................. $317,410 $301,813 $353,323
In general, the stock-based compensation expense for our equity incentive awards is recognized over their
respective vesting period. As of December 31, 2008, there was approximately $749.9 million of unearned stock-
based compensation estimated to be expensed from 2009 through 2012. If there are any modifications or
cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any
remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase
to the extent we grant additional equity awards or change the mix of grants between stock options and restricted
stock units or assume unvested equity awards in connection with acquisitions.
Prior to the adoption of FAS 123(R), the intrinsic value of Skype’s and Shopping.com’s unvested common
stock options assumed in the acquisition was recorded as unearned stock-based compensation. Upon the adoption of
FAS 123(R) in January 2006, the unearned stock-based compensation balance of $45.5 million was reclassified to
additional paid-in capital.
105
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)