FFIV » Topics » Stock-Based Compensation

These excerpts taken from the FFIV 10-K filed Nov 21, 2008.
Stock-Based Compensation
 
The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“FAS 123R”), using the straight-line attribution method for recognizing compensation expense. The Company recognized $60.6 million, $41.2 million and $24.8 million of stock-based compensation expense for the fiscal years ended September 30, 2008, 2007 and 2006, respectively. As of September 30, 2008, there was $82.9 million of total unrecognized stock-based compensation cost, the majority of which will be recognized over the next two years. Going forward, stock-based compensation expenses may increase as the Company issues additional equity-based awards to continue to attract and retain key employees.
 
The Company issues incentive awards to its employees through stock-based compensation consisting of stock options and restricted stock units (“RSUs”). On August 1, 2008, the Company awarded approximately 1.5 million RSUs to employees and executive officers pursuant to the Company’s annual equity awards program. The value of RSUs is determined using the intrinsic value method, which in this case, is based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. Alternatively, in determining the fair value of stock options, the Company uses the Black-Scholes option pricing model that employs the following key assumptions.
 
                                                 
    Stock Option Plan
    Employee Stock Purchase Plan
 
    Years Ended September 30,     Years Ended September 30,  
    2008     2007     2006     2008     2007     2006  
 
Risk-free interest rate
    2.87 %     4.46 %     4.86 %     1.73 %     5.03 %     4.90 %
Expected dividend
                                   
Expected term
    4.1 years       6.3 years       6.3 years       0.5 years       0.5 years       0.5 years  
Expected volatility
    52.64 %     65.76 %     51.07 %     65.91 %     42.62 %     45.35 %
 
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company does not anticipate declaring dividends in the foreseeable future. Expected volatility is based on the annualized daily historical volatility of the Company’s stock price commensurate with the expected life of the option. Expected term of the option is based on an evaluation of the historical employee stock option exercise behavior, the vesting terms of the respective option and a contractual life of ten years. The Company’s stock price volatility and option lives involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. SFAS 123R also requires the Company to recognize compensation expense for only the portion of options or stock units that are expected to vest. Therefore, the Company applies estimated forfeiture rates that are derived from historical employee termination behavior. In the fourth quarter of fiscal 2008, the Company began estimating forfeitures by class of employee to better reflect


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F5 NETWORKS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
historical behavior. Based on historical differences with forfeitures of stock-based awards granted to the Company’s executive officers and Board of Directors versus grants awarded to all other employees, the Company has developed separate forfeiture expectations for these two groups. The estimated forfeiture rate for grants awarded to the Company’s executive officers and Board of Directors was approximately 4% and the estimated forfeiture rate for grants awarded to all other employees was approximately 10% in the fourth quarter of fiscal 2008. An estimated forfeiture rate of 4% was used for the first three quarters of fiscal 2008 and for fiscal 2007 and an estimated forfeiture rate of 5% was used for fiscal 2006. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
 
Compensation cost recognized for the fiscal year ended September 30, 2008 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of July 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation and (b) compensation cost for all share-based payments granted or modified subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of FAS 123R.
 
Stock-Based
Compensation



 



The Company accounts for stock-based compensation in accordance
with Financial Accounting Standards Board (“FASB”)
Statement No. 123(R), “Share-Based Payment”
(“FAS 123R”), using the straight-line
attribution method for recognizing compensation expense. The
Company recognized $60.6 million, $41.2 million and
$24.8 million of stock-based compensation expense for the
fiscal years ended September 30, 2008, 2007 and 2006,
respectively. As of September 30, 2008, there was
$82.9 million of total unrecognized stock-based
compensation cost, the majority of which will be recognized over
the next two years. Going forward, stock-based compensation
expenses may increase as the Company issues additional
equity-based awards to continue to attract and retain key
employees.


 



The Company issues incentive awards to its employees through
stock-based compensation consisting of stock options and
restricted stock units (“RSUs”). On August 1,
2008, the Company awarded approximately 1.5 million RSUs to
employees and executive officers pursuant to the Company’s
annual equity awards program. The value of RSUs is determined
using the intrinsic value method, which in this case, is based
on the number of shares granted and the quoted price of the
Company’s common stock on the date of grant. Alternatively,
in determining the fair value of stock options, the Company uses
the Black-Scholes option pricing model that employs the
following key assumptions.


 






















































































































































































                                                 

 

 

Stock Option Plan



 

 

Employee Stock Purchase Plan



 

 

 

Years Ended September 30,

 

 

Years Ended September 30,

 

 

 

2008

 

 

2007

 

 

2006

 

 

2008

 

 

2007

 

 

2006

 
 


Risk-free interest rate


 

 

2.87

%

 

 

4.46

%

 

 

4.86

%

 

 

1.73

%

 

 

5.03

%

 

 

4.90

%


Expected dividend


 

 



 

 

 



 

 

 



 

 

 



 

 

 



 

 

 



 


Expected term


 

 

4.1 years

 

 

 

6.3 years

 

 

 

6.3 years

 

 

 

0.5 years

 

 

 

0.5 years

 

 

 

0.5 years

 


Expected volatility


 

 

52.64

%

 

 

65.76

%

 

 

51.07

%

 

 

65.91

%

 

 

42.62

%

 

 

45.35

%






 



The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant. The Company does not
anticipate declaring dividends in the foreseeable future.
Expected volatility is based on the annualized daily historical
volatility of the Company’s stock price commensurate with
the expected life of the option. Expected term of the option is
based on an evaluation of the historical employee stock option
exercise behavior, the vesting terms of the respective option
and a contractual life of ten years. The Company’s stock
price volatility and option lives involve management’s best
estimates at that time, both of which impact the fair value of
the option calculated under the Black-Scholes methodology and,
ultimately, the expense that will be recognized over the life of
the option. SFAS 123R also requires the Company to
recognize compensation expense for only the portion of options
or stock units that are expected to vest. Therefore, the Company
applies estimated forfeiture rates that are derived from
historical employee termination behavior. In the fourth quarter
of fiscal 2008, the Company began estimating forfeitures by
class of employee to better reflect





57





Table of Contents





 




F5
NETWORKS, INC.




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 



historical behavior. Based on historical differences with
forfeitures of stock-based awards granted to the Company’s
executive officers and Board of Directors versus grants awarded
to all other employees, the Company has developed separate
forfeiture expectations for these two groups. The estimated
forfeiture rate for grants awarded to the Company’s
executive officers and Board of Directors was approximately 4%
and the estimated forfeiture rate for grants awarded to all
other employees was approximately 10% in the fourth quarter of
fiscal 2008. An estimated forfeiture rate of 4% was used for the
first three quarters of fiscal 2008 and for fiscal 2007 and an
estimated forfeiture rate of 5% was used for fiscal 2006. If the
actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may
be required in future periods.


 



Compensation cost recognized for the fiscal year ended
September 30, 2008 includes: (a) compensation cost for
all share-based payments granted prior to, but not yet vested as
of July 1, 2005, based on the grant-date fair value
estimated in accordance with the original provisions of FASB
Statement No. 123, Accounting for Stock-Based
Compensation
and (b) compensation cost for all
share-based payments granted or modified subsequent to
July 1, 2005, based on the grant-date fair value estimated
in accordance with the provisions of FAS 123R.


 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Nov 21, 2008

RELATED TOPICS for FFIV:

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