(3) Equity Offering and Stock-Based Compensation
The Company uses a broad based equity incentive plan to help align employee and director incentives with stockholders’ interests. The 2005 Equity Incentive Plan (the “Plan”) was approved in March 2005 and provides for the awarding of options, restricted stock, stock bonuses, restricted stock units, and stock appreciation rights. The Compensation Committee of the Board of Directors administers the Plan. A total of 2,500,000 shares of common stock were initially reserved for issuance under the Plan, and the number of shares available for issuance under the Plan is increased by an amount equal to 2% of the Company’s total outstanding shares as of July 31 each year.
In 2005, the Company began granting shares of restricted stock and stock options under the Plan. The shares of restricted stock vest over three, four or five-year periods. The stock options expire in ten years and vest over three, four or five years. As of July 31, 2013, options to purchase 1,457,076 shares of common stock were outstanding, of which 672,074 were exercisable. At July 31, 2013, the Company had 1,331,295 shares available for future grant under the Plan.
ASC 718, “Compensation — Stock Compensation,” requires the recognition of compensation expense in an amount equal to the fair value of share-based awards. Beginning with the Company’s adoption of ASC 718 in August 2005, the fair value of all stock options granted subsequent to August 1, 2005 is recognized as an expense in the Company’s statement of operations, typically over the related vesting period of the options. The guidance requires use of fair value computed at the date of grant to measure share-based awards. The fair value of restricted stock awards is recognized as stock-based compensation expense over the vesting period, generally three, four or five years from date of grant or award. The Company recorded total stock-based compensation expense of $4.1 million, $9.2 million, and $7.7 million for fiscal 2013, 2012 and 2011, respectively.
Stock Option Awards: The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option valuation model. Expected stock price volatilities were estimated based on the Company’s implied historical volatility. The expected term of options granted is based on the simplified method due to the lack of historical Company information. Forfeiture rates were based on assumptions and historical data to the extent it is available. The risk-free rates were based on U.S. Treasury yields in effect at the time of the grant. For purposes of this valuation model, dividends are based on the historical rate.
Assumptions used in the Black-Scholes model are presented below (for the year ended July 31):
| 2013 | 2012 | 2011 | ||||||||
|
Average expected life, in years |
5.50-6.06 | 6 | 6 | |||||||
|
Expected volatility |
52.99%-55.48% | 49.59 | % | 41.63 | % | |||||
|
Risk-free interest rate |
0.83%- 1.69% | 1.13 | % | 2.10 | % | |||||
|
Dividend rate |
0.00% | 0.20 | % | 0.34 | % | |||||
The following table summarizes option activity during fiscal 2013, 2012 and 2011:
| Number of Shares |
Weighted Average Exercise Price Per Share |
Weighted Average Remaining Contractual Life |
Aggregate Intrinsic Value |
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| (In thousands) | (In years) | (In thousands) | ||||||||||||||
|
Outstanding at July 31, 2010 |
1,452 | 21.11 | 6.4 | $ | 34,027 | |||||||||||
|
Granted |
442 | 46.59 | ||||||||||||||
|
Exercised |
(97 | ) | 18.61 | |||||||||||||
|
Cancelled |
(26 | ) | 38.61 | |||||||||||||
|
|
|
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|
Outstanding at July 31, 2011 |
1,771 | 27.34 | 6.3 | $ | 78,551 | |||||||||||
|
Granted |
371 | 68.73 | ||||||||||||||
|
Exercised |
(2 | ) | 27.94 | |||||||||||||
|
Cancelled |
(61 | ) | 57.33 | |||||||||||||
|
|
|
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|
Outstanding at July 31, 2012 |
2,079 | 33.85 | 5.8 | $ | 123 | |||||||||||
|
|
|
|||||||||||||||
|
Granted |
738 | 15.10 | ||||||||||||||
|
Exercised |
(125 | ) | 16.20 | |||||||||||||
|
Cancelled |
(1,235 | ) | 33.61 | |||||||||||||
|
|
|
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|
Outstanding at July 31, 2013 |
1,457 | 26.06 | 6.9 | $ | 4,757 | |||||||||||
|
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|
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|
Exercisable at July 31, 2011 |
1,235 | 19.98 | 5.1 | $ | 63,756 | |||||||||||
|
Exercisable at July 31, 2012 |
1,448 | 24.36 | 4.5 | $ | 123 | |||||||||||
|
Exercisable at July 31, 2013 |
672 | 30.43 | 4.9 | $ | 1,220 | |||||||||||
The weighted average fair value of options granted during fiscal 2013, 2012 and 2011 was $7.81, $28.50 and $18.95, respectively. The total intrinsic value of options exercised during fiscal 2013, 2012 and 2011 was $0.3 million, $0.1 million and $3.0 million, respectively. The total fair value of options vested during fiscal 2013, 2012 and 2011 was $5.4 million, $4.8 million and $2.1 million, respectively.
Changes in the Company’s nonvested options during fiscal 2013 are summarized as follows:
| Number of Shares |
Weighted Average Grant Date Fair Value Per Share |
|||||||
| (In thousands) | ||||||||
|
Nonvested at July 31, 2012 |
631 | $ | 23.00 | |||||
|
Granted |
678 | $ | 7.81 | |||||
|
Vested |
(284 | ) | $ | 19.05 | ||||
|
Cancelled |
(240 | ) | $ | 25.61 | ||||
|
|
|
|
|
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|
Nonvested at July 31, 2013 |
785 | $ | 10.51 | |||||
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|
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As of July 31, 2013, there was $7.1 million of total unrecognized compensation cost net of forfeitures related to nonvested stock options, which is expected to be recognized over a weighted average period of 2.9 years. Cash received from option exercises was $2.0 million, $0 million and $1.8 million for fiscal 2013, 2012 and 2011, respectively.
Restricted Stock Awards: Restricted stock activity during fiscal 2013, 2012 and 2011 is summarized as follows:
| Restricted Stock | Restricted Stock Units | |||||||||||||||
| Number of Shares |
Weighted Average Grant Date Fair Value Per Share |
Number of Shares |
Weighted Average Grant Date Fair Value Per Share |
|||||||||||||
| (In thousands) | ||||||||||||||||
|
Outstanding at July 31, 2010 |
408 | 26.78 | — | — | ||||||||||||
|
Granted |
115 | 47.04 | — | — | ||||||||||||
|
Vested |
(115 | ) | 24.51 | — | — | |||||||||||
|
Cancelled |
(15 | ) | 38.44 | — | — | |||||||||||
|
|
|
|
|
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|
Outstanding at July 31, 2011 |
393 | 32.96 | — | — | ||||||||||||
|
Granted |
138 | 46.93 | 16 | 74.62 | ||||||||||||
|
Vested |
(125 | ) | 28.54 | — | — | |||||||||||
|
Cancelled |
(26 | ) | 52.22 | (3 | ) | 74.62 | ||||||||||
|
|
|
|
|
|||||||||||||
|
Outstanding at July 31, 2012 |
380 | 38.18 | 13 | 74.62 | ||||||||||||
|
Granted |
356 | 14.81 | 233 | 14.78 | ||||||||||||
|
Vested |
(179 | ) | 27.30 | (2 | ) | 74.62 | ||||||||||
|
Cancelled |
(150 | ) | 38.83 | (26 | ) | 22.40 | ||||||||||
|
|
|
|
|
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|
Outstanding at July 31, 2013 |
407 | 22.25 | 218 | 16.87 | ||||||||||||
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The total intrinsic value of restricted stock vested in fiscal 2013, 2012 and 2011 was $3.0 million, $7.6 million and $5.5 million, respectively.
As of July 31, 2013, there was $6.6 million of unrecognized compensation cost net of forfeitures related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of 2.9 years. As of July 31, 2013, there was $2.6 million of unrecognized compensation cost net of forfeitures related to nonvested restricted stock units, which is expected to be recognized over a weighted average period of 3.4 years. Cash used to settle stock awards were $0 million for fiscal 2013, 2012, and 2011.