CommVault Systems (CVLT)

We will continue to use the “simplified” method until we have enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. The risk-free interest rate is determined by reference to U.S. Treasury yield curve rates with a remaining term equal to the expected life assumed at the date of grant. We anticipate that future grants under our stock incentive plans will include both non-qualified stock options and restricted stock units.

 

Expected volatility through the quarter ended September 30, 2008 was calculated based on reported data for a peer group of publicly traded companies for which historical information was available. During the quarter ended December 31, 2008, we began to incorporate our own data into the expected volatility assumption. We modified our expected volatility calculation because our common stock has now been publically traded for 2 years and we believe that CommVault specific volatility inputs should now be included in the calculation of expected volatility. As a result, expected volatility during the quarters ended December 31, 2008 and March 31, 2009 were calculated based on a blended approach that included historical volatility of a peer group, the implied volatility of our traded options with a remaining maturity greater than six months and the historical realized volatility of our common stock from the date of our initial public offering to the respective stock option grant date.

 

The assumptions used in the Black-Scholes option-pricing model in the fiscal year ended March 31, 2009 and 2008 are as follows:

 

 

The weighted average fair value of stock options granted was $5.14 during the year ended March 31, 2009, and $7.71 during the year ended March 31, 2008. In addition, the weighted average fair value of restricted stock units awarded was $11.92 per share during the year ended March 31, 2009, and $15.86 per share during the year ended March 31, 2008. As of March 31, 2009, there was approximately $29.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested stock option and restricted stock unit awards that is expected to be recognized over a weighted average period of 2.88 years. The intrinsic value of the options outstanding as of March 31, 2009 was $26.6 million, of which $24.5 million related to vested options and $2.1 million related to unvested options.

 

All stock options granted subsequent to the completion of our initial public offering on September 27, 2006 were granted with an exercise price equal to the fair market value of our common stock based on the publically traded price as reported by The NASDAQ Stock Market. In establishing estimates of fair value of our common stock from January 1, 2005 through May 31, 2006, we performed a retrospective determination of fair value of our common stock utilizing the probability weighted expected returns (“PWER”) method described in the AICPA Technical Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, which is more fully described in our prospectus dated September 12, 2006. We estimated the fair value of our common stock from June 1, 2006 through September 26, 2006 based on a contemporaneous valuation using the PWER method for stock options granted on July 27, 2006 and based on the midpoint of the estimated offering range contained in our prospectus for options granted on September 12, 2006.

 

 

As of March 31, 2009, we maintain two stock incentive
plans, which are described more fully in Note 8 of our
“Notes to Consolidated Financial Statements.”
We account for our stock incentive plans under the fair value
recognition provisions of SFAS Statement No. 123
(revised 2004), Share-Based Payment
(“SFAS 123(R)”), which we adopted on
April 1, 2006 using the modified prospective method. Under
this transition method, our stock-based compensation costs
beginning April 1, 2006 are based on a combination of the
following: (1) all options granted prior to, but not vested
as of April 1, 2006, based on the grant date fair value in
accordance with the original provisions of SFAS 123 and
(2) all options and restricted stock units granted
subsequent to April 1, 2006, based on the grant date fair
value estimated in accordance with SFAS 123(R).

 

Under SFAS 123(R), we estimated the fair value of stock
options granted using the Black-Scholes formula. The fair value
of restricted stock units awarded is determined based on the
number of shares granted and the closing price of our common
stock on the date of grant. Compensation for all share-based
payment awards is recognized on a straight-line basis over the
requisite service period of the awards, which is generally the
vesting period. Forfeitures are estimated based on a historical
analysis of our actual stock award forfeitures.

 

The average expected life was determined according to the
“simplified method” as described in SAB 107 and
110, which is the mid-point between the vesting date and the end
of the contractual term. We currently use the
“simplified” method to estimate the expected term for
share option grants as we do not have enough historical
experience to provide a reasonable estimate due to the limited
period our equity shares have been publicly traded.

We will continue to use the “simplified” method until
we have enough historical experience to provide a reasonable
estimate of expected term in accordance with SAB 110. The
risk-free interest rate is determined by reference to
U.S. Treasury yield curve rates with a remaining term equal
to the expected life assumed at the date of grant. We anticipate
that future grants under our stock incentive plans will include
both non-qualified stock options and restricted stock units.

 

Expected volatility through the quarter ended September 30,
2008 was calculated based on reported data for a peer group of
publicly traded companies for which historical information was
available. During the quarter ended December 31, 2008, we
began to incorporate our own data into the expected volatility
assumption. We modified our expected volatility calculation
because our common stock has now been publically traded for
2 years and we believe that CommVault specific volatility
inputs should now be included in the calculation of expected
volatility. As a result, expected volatility during the quarters
ended December 31, 2008 and March 31, 2009 were
calculated based on a blended approach that included historical
volatility of a peer group, the implied volatility of our traded
options with a remaining maturity greater than six months and
the historical realized volatility of our common stock from the
date of our initial public offering to the respective stock
option grant date.

 

The assumptions used in the Black-Scholes option-pricing model
in the fiscal year ended March 31, 2009 and 2008 are as
follows:

 

 

The weighted average fair value of stock options granted was
$5.14 during the year ended March 31, 2009, and $7.71
during the year ended March 31, 2008. In addition, the
weighted average fair value of restricted stock units awarded
was $11.92 per share during the year ended March 31, 2009,
and $15.86 per share during the year ended March 31, 2008.
As of March 31, 2009, there was approximately
$29.1 million of unrecognized stock-based compensation
expense, net of estimated forfeitures, related to non-vested
stock option and restricted stock unit awards that is expected
to be recognized over a weighted average period of
2.88 years. The intrinsic value of the options outstanding
as of March 31, 2009 was $26.6 million, of which
$24.5 million related to vested options and
$2.1 million related to unvested options.

 

All stock options granted subsequent to the completion of our
initial public offering on September 27, 2006 were granted
with an exercise price equal to the fair market value of our
common stock based on the publically traded price as reported by
The NASDAQ Stock Market. In establishing estimates of fair value
of our common stock from January 1, 2005 through
May 31, 2006, we performed a retrospective determination of
fair value of our common stock utilizing the probability
weighted expected returns (“PWER”) method described in
the AICPA Technical Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation,
which is more fully described in our prospectus dated
September 12, 2006. We estimated the fair value of our
common stock from June 1, 2006 through September 26,
2006 based on a contemporaneous valuation using the PWER method
for stock options granted on July 27, 2006 and based on the
midpoint of the estimated offering range contained in our
prospectus for options granted on September 12, 2006.

 

On April 1, 2006, we adopted the fair value recognition provisions of SFAS Statement No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”) using the modified prospective method. Under this transition method, our stock-based compensation costs beginning April 1, 2006 is based on a combination of the following: (1) all options granted prior to, but not vested as of April 1, 2006, based on the grant date fair value in accordance with the original provisions of SFAS 123 and (2) all options and restricted stock units granted subsequent to April 1, 2006, based on the grant date fair value estimated in accordance with SFAS 123(R). We anticipate that future grants under our stock-based compensation plans will include both non-qualified stock options and restricted stock units.

 

Under SFAS 123(R), we estimated the fair value of stock options granted using the Black-Scholes formula. The fair value of restricted stock units awarded is determined based on the number of shares granted and the closing price of our common stock on the date of grant. Compensation for all share-based payment awards is recognized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Forfeitures are estimated based on a historical analysis of our actual stock option forfeitures. Expected volatility was calculated based on reported data for a peer group of publicly traded companies for which historical information was available. We will continue to use peer group volatility information until our historical volatility is relevant to measure expected volatility for future option grants. The risk-free interest rate is determined by reference to U.S. Treasury yield curve rates with a remaining term equal to the expected life assumed at the date of grant. The average expected life was determined according to the “simplified method” as described in SAB 107, Disclosure about Fair Value of Financial Instruments, which is the mid-point between the vesting date and the end of the contractual term. In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB 110 extends the use of the “simplified” method for “plain vanilla” awards in certain situations. We currently use the “simplified” method to estimate the expected term for share option grants as we do not have enough historical experience to provide a reasonable estimate due to the limited period our equity shares have been publicly traded. We will continue to use the “simplified” method until we have enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110.

 

The assumptions used in the Black-Scholes option-pricing model in the fiscal year ended March 31, 2008 and 2007 are as follows:

 

 

The weighted average fair value of stock options granted was $7.71 during the year ended March 31, 2008, and $8.11 during the year ended March 31, 2007. In addition, the weighted average fair value of restricted stock units awarded was $15.86 per share during the year ended March 31, 2008. As of March 31, 2008, there was approximately $29.0 million of unrecognized stock-based compensation expense related to non-vested stock option and restricted stock unit awards that is expected to be recognized over a weighted average period of 2.93 years. The intrinsic value of the options outstanding as of March 31, 2008, was $36.9 million, of which $30.0 million related to vested options and $6.9 million related to unvested options.

 

All stock options granted subsequent to the completion of our initial public offering on September 27, 2006 were granted with an exercise price equal to the fair market value of our common stock based on the publically traded price as reported by The NASDAQ Stock Market. In establishing estimates of fair value of our common stock from January 1, 2005 through May 31, 2006, we performed a retrospective determination of fair value of our common stock utilizing the probability weighted expected returns (“PWER”) method described in the AICPA Technical Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, which is more fully described in our prospectus dated September 12, 2006. We estimated the fair value of our common stock from June 1, 2006 through September 26, 2006 based on a contemporaneous valuation using the PWER method for stock options granted on July 27, 2006 and based on the midpoint of the estimated offering range contained in our prospectus for options granted on September 12, 2006.

 

As of March 31, 2008, we maintain two stock-based
compensation plans, which are described more fully in
Note 8 of our “Notes to Consolidated Financial
Statements.” Prior to April 1, 2006, we accounted
for our stock option plan under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, as
permitted by FASB Statement No. 123,
(“SFAS 123”), Accounting for Stock-Based
Compensation. Stock-based employee compensation cost was
recognized in the Statement of Operations for the year ended
March 31, 2006 to the extent stock options granted had an
exercise price that was less than the fair value of the
underlying common stock on the date of grant. In Note 2 of
our consolidated financial statements, we have presented the pro
forma effect on net income (loss) attributable to common
stockholders as if we had applied the fair value recognition of
SFAS 123.

On April 1, 2006, we adopted the fair value recognition
provisions of SFAS Statement No. 123 (revised 2004),
Share-Based Payment, (“SFAS 123(R)”) using
the modified prospective method. Under this transition method,
our stock-based compensation costs beginning April 1, 2006
is based on a combination of the following: (1) all options
granted prior to, but not vested as of April 1, 2006, based
on the grant date fair value in accordance with the original
provisions of SFAS 123 and (2) all options and
restricted stock units granted subsequent to April 1, 2006,
based on the grant date fair value estimated in accordance with
SFAS 123(R). We anticipate that future grants under our
stock-based compensation plans will include both non-qualified
stock options and restricted stock units.

 

Under SFAS 123(R), we estimated the fair value of stock
options granted using the Black-Scholes formula. The fair value
of restricted stock units awarded is determined based on the
number of shares granted and the closing price of our common
stock on the date of grant. Compensation for all share-based
payment awards is recognized on a straight-line basis over the
requisite service period of the awards, which is generally the
vesting period. Forfeitures are estimated based on a historical
analysis of our actual stock option forfeitures. Expected
volatility was calculated based on reported data for a peer
group of publicly traded companies for which historical
information was available. We will continue to use peer group
volatility information until our historical volatility is
relevant to measure expected volatility for future option
grants. The risk-free interest rate is determined by reference
to U.S. Treasury yield curve rates with a remaining term
equal to the expected life assumed at the date of grant. The
average expected life was determined according to the
“simplified method” as described in SAB 107,
Disclosure about Fair Value of Financial Instruments,
which is the mid-point between the vesting date and the end of
the contractual term. In December 2007, the Securities and
Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 110
(“SAB 110”). SAB 110 extends the use
of the “simplified” method for “plain
vanilla” awards in certain situations. We currently use the
“simplified” method to estimate the expected term for
share option grants as we do not have enough historical
experience to provide a reasonable estimate due to the limited
period our equity shares have been publicly traded. We will
continue to use the “simplified” method until we have
enough historical experience to provide a reasonable estimate of
expected term in accordance with SAB 110.

 

The assumptions used in the Black-Scholes option-pricing model
in the fiscal year ended March 31, 2008 and 2007 are as
follows:

 

 

The weighted average fair value of stock options granted was
$7.71 during the year ended March 31, 2008, and $8.11
during the year ended March 31, 2007. In addition, the
weighted average fair value of restricted stock units awarded
was $15.86 per share during the year ended March 31, 2008.
As of March 31, 2008, there was approximately
$29.0 million of unrecognized stock-based compensation
expense related to non-vested stock option and restricted stock
unit awards that is expected to be recognized over a weighted
average period of 2.93 years. The intrinsic value of the
options outstanding as of March 31, 2008, was
$36.9 million, of which $30.0 million related to
vested options and $6.9 million related to unvested options.

 

All stock options granted subsequent to the completion of our
initial public offering on September 27, 2006 were granted
with an exercise price equal to the fair market value of our
common stock based on the publically traded price as reported by
The NASDAQ Stock Market. In establishing estimates of fair value
of our common stock from January 1, 2005 through
May 31, 2006, we performed a retrospective determination of
fair value of our common stock utilizing the probability
weighted expected returns (“PWER”) method described in
the AICPA Technical Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as
Compensation, which is more fully described in our
prospectus dated September 12, 2006. We estimated the fair
value of our common stock from June 1, 2006 through
September 26, 2006 based on a contemporaneous valuation
using the PWER method for stock options granted on July 27,
2006 and based on the midpoint of the estimated offering range
contained in our prospectus for options granted on
September 12, 2006.