LAVA » Topics » Stock-based Compensation

This excerpt taken from the LAVA 10-Q filed Mar 12, 2009.

Stock-based compensation

Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-Q filed Dec 11, 2008.

Stock-based compensation

Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-Q filed Sep 12, 2008.

Stock-based compensation

Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-K filed Jun 16, 2008.

Stock-based compensation

Effective April 3, 2006, the Company accounts for stock-based employee compensation arrangements under SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) which supersedes the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and requires the fair value recognition of share-based payment arrangements, including stock options, restricted stock, restricted stock units and shares issued under the Employee Stock Purchase Plan (“ESPP”). Prior to April 3, 2006, the Company accounted for its stock-based compensation plans using the intrinsic value method under the provisions of APB 25 and related guidance. The Company adopted SFAS 123R using the modified prospective transition method and accordingly prior periods have not been restated to reflect the impact of SFAS 123R. Under the modified-prospective-transition method, the results of operations include compensation costs of unvested options and awards granted prior to April 3, 2006, and options and awards granted subsequent to that date. Additionally, the Company elected to use the straight-line method to recognize its stock-based compensation expenses over the option and award’s vesting periods. For options and awards granted prior to adoption of SFAS 123R, the Company continues to record stock-based compensation expenses under the accelerated attribution method.

The Company uses the Black-Scholes option pricing model to determine the fair value of each stock option grant and each purchase right granted under its ESPP. The fair value of each restricted stock and restricted stock unit is determined using the fair value of the Company’s common stock on the date of the grant. Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. The Company established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. The risk-free interest rate for the period within the expected life of the option is based on the yield of United States Treasury notes at the time of grant. Magma has not historically paid dividends, thus the expected dividends used in the calculation are zero.

 

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The Company has not provided an income tax benefit for stock-based compensation expense for current and prior year periods because it is more likely than not that the deferred tax assets associated with this expense will not be realized. To the extent the Company realizes the deferred tax assets associated with the stock-based compensation expense in the future, the income tax effects of such an event may be recognized at that time. Prior to the adoption of SFAS 123R, the Company presented all tax benefits for deductions resulting from the exercise of stock options as operating cash flows on its statement of cash flows. SFAS 123R requires the cash retained as a result of tax benefits for tax deductions in excess of the compensation expense recorded for those options to be classified as cash from financing activities. The Company recorded no such excess tax benefits for fiscal 2008 and 2007. The tax benefits recorded in fiscal 2008 and 2007 under additional paid-in capital on the consolidated stockholders’ equity statement represented the true-up adjustment on its prior year tax provision. In addition, upon adoption of SFAS 123R, the Company elected to calculate its historical pool of windfall tax benefits using the “long-form method” provided in paragraph 81 of SFAS 123R, which resulted in an APIC windfall pool of tax benefits position.

This excerpt taken from the LAVA 10-Q filed Feb 14, 2008.

Stock-based Compensation

Effective April 3, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” using the modified prospective transition method. Under SFAS 123R, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior

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patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-Q filed Nov 9, 2007.

Stock-based Compensation

Effective April 3, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” using the modified prospective transition method. Under SFAS 123R, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

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Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-Q filed Aug 9, 2007.

Stock-based compensation

Effective April 3, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” using the modified prospective transition method. Under SFAS 123R, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

This excerpt taken from the LAVA 10-K filed Jun 6, 2007.

Note 11.    Stock-Based Compensation

 

Stock-based compensation expense by type of awards during the year ended April 1, 2007 was as follows (in thousands):

 

     Year Ended
April 1, 2007


Stock options

   $ 10,489

Restricted stock and restricted stock units

     3,187

Employee stock purchase plan

     1,889
    

Total stock-based compensation expense

   $ 15,565
    

 

This excerpt taken from the LAVA 10-Q filed Feb 8, 2007.

Stock-based compensation

 

Effective from the first quarter of fiscal 2007, we account for stock-based employee compensation arrangements under SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) and no longer apply the intrinsic value method to recognize deferred compensation of fixed and variable awards. We adopted SFAS 123R using the modified-prospective-transition method, resulting in the inclusion in our operating results of compensation costs related to unvested options granted prior to April 3, 2006, and options granted subsequent to that date. Under the modified-prospective-transition method of SFAS 123R, prior periods were not restated for comparative purposes to reflect the impact of SFAS 123R.

 

Adoption of SFAS 123R has had a material effect on our financial results since April 3, 2006, increasing total stock-based compensation expenses from $0.9 million and $3.9 million, respectively, for the three and nine months ended January 1, 2006 using the intrinsic value method to $3.3 million and $12.3 million, respectively, for the three and nine months ended December 31, 2006 using the SFAS 123R fair value method. We continue to evaluate the terms of our stock-based compensation arrangements to provide appropriate incentives to recruit and retain our employees. We expect our quarterly stock-based compensation expense in the fourth quarter of fiscal 2007 to be consistent with the amount in the third quarter of fiscal 2007. In March 2005, the Commission issued Staff Accounting Bulletin (“SAB”) No. 107, which provided supplemental implementation guidance for SFAS 123R. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation as provided in Note 2 to the unaudited condensed consolidated financial statements.

 

We use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan awards. The Black-Scholes option pricing model was developed for use in estimating the fair value of short lived exchange-traded options that have no vesting restrictions and were fully transferable. In addition, the Black-Scholes option-pricing model incorporates various highly subjective assumptions including expected future stock price volatility and expected term of instruments. In developing estimates used in the adoption of SFAS 123R, we established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and prevesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected volatility under SFAS 123R was developed based on the average of our historical weekly stock price volatility and average implied volatility.

 

Additionally, SFAS 123R requires the rate of forfeiture to be estimated and recorded during the option term unlike previous accounting guidance which allowed adjustments to stock compensation when forfeitures occurred. Consequently, during the first quarter of 2007, we recorded a credit of $321,000 reflecting the cumulative effect of the change in accounting principle for forfeitures primarily related to unvested restricted stock that had previously been recognized as stock-based compensation expense without consideration of forfeitures. No income tax benefit related to the cumulative effect of the change in accounting for stock option forfeitures was recorded as we have provided full valuation allowance against our net deferred tax assets.

 

This excerpt taken from the LAVA 10-Q filed Nov 9, 2006.

Stock-Based Compensation

 

Effective from the first quarter of fiscal 2007, we account for stock-based employee compensation arrangements under SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) and no longer apply the intrinsic value method to recognize deferred compensation of fixed and variable awards. We adopted SFAS 123R using the modified-prospective-transition method, resulting in the inclusion in our operating results of compensation costs related to unvested options granted prior to April 3, 2006, and options granted subsequent to that date. Under the modified-prospective-transition method of SFAS 123R, prior periods were not restated for comparative purposes to reflect the impact of SFAS 123R.

 

Adoption of SFAS 123R had a material effect on the Company’s financial results since April 3, 2006, increasing total stock-based compensation expenses from $1.3 million and $3.0 million, respectively, for the three and six months ended October 2, 2005 using the intrinsic value method to $4.1 million and $9.0 million, respectively, for the three and six months ended October 1, 2006 using the SFAS 123R fair value method. We continue to evaluate the terms of our stock-based compensation arrangements to provide appropriate incentives to recruit and retain our employees. We expect our quarterly stock-based compensation expense in each of the remaining two quarters of fiscal 2007 to be consistent with the amount in the second quarter of fiscal 2007. In March 2005, the Commission issued Staff Accounting Bulletin (“SAB”) No. 107, which provided supplemental implementation guidance for SFAS 123R. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation as provided in Note 2 to the financial statements.

 

We use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan awards. The Black-Scholes option pricing model was developed for use in estimating the fair value of short lived exchange-traded options that have no vesting restrictions and were fully transferable. In addition, the Black-Scholes option-pricing model incorporates various highly subjective assumptions including expected future stock price volatility and expected term of instruments. In developing estimates used in the adoption of SFAS 123R, the Company established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and prevesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected volatility under SFAS 123R was developed based on the average of Magma’s historical weekly stock price volatility and average implied volatility.

 

Additionally, SFAS 123R requires the rate of forfeiture to be estimated and recorded during the option term unlike previous accounting guidance which allowed adjustments to stock compensation when forfeitures occurred. Consequently, during the first quarter of 2007, we recorded a credit of $321,000 reflecting the cumulative effect of the change in accounting principle for forfeitures primarily related to unvested restricted stock that had previously been recognized as stock-based compensation expense without consideration of forfeitures. No income tax benefit related to the cumulative effect of the change in accounting for stock option forfeitures was recorded as the Company has provided full valuation allowance against its net deferred tax assets.

 

This excerpt taken from the LAVA 10-Q filed Aug 11, 2006.

Stock-Based Compensation

 

Effective from the first quarter of fiscal 2007, we account for stock-based employee compensation arrangements under SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) and no longer apply the intrinsic value method to recognize deferred compensation of fixed and variable awards. We adopted SFAS 123R using the modified-prospective-transition method, resulting in the inclusion in our operating results of compensation costs related to unvested options granted prior to April 3, 2006, and options granted subsequent to that date. Under the modified-prospective-transition method of SFAS 123R, prior periods were not restated for comparative purposes to reflect the impact of SFAS 123R.

 

Adoption of SFAS 123R had a material effect on the Company’s financial results since April 3, 2006, increasing total stock-based compensation expenses from $1.7 million for the three months ended July 3, 2005 using the intrinsic value method to $4.9 million for the three months ended July 2, 2006 using the SFAS 123R fair value method. We continue to evaluate the terms of our stock-based compensation arrangements to provide appropriate incentives to recruit and retain our employees. We expect our quarterly stock-based compensation expense in each of the remaining three quarters of fiscal 2007 to be consistent with the amount in the first quarter of fiscal 2007. In March 2005, the Commission issued Staff Accounting Bulletin (“SAB”) No. 107, which provided supplemental implementation guidance for SFAS 123R. SAB 107 requires stock-based compensation to be classified in the same expense line items as cash compensation as provided in Note 2 to the financial statements.

 

We use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan awards. The Black-Scholes option pricing model was developed for use in estimating the fair value of short lived exchange-traded options that have no vesting restrictions and were fully transferable. In addition, the Black-Scholes option-pricing model incorporates various highly subjective assumptions including expected future stock price volatility and expected term of instruments. In developing estimates used in the adoption of SFAS 123R, the Company established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and prevesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected volatility under SFAS 123R was developed based on the average of Magma’s historical weekly stock price volatility and average implied volatility.

 

Additionally, SFAS 123R requires the rate of forfeiture to be estimated and recorded during the option term unlike previous accounting guidance which allowed adjustments to stock compensation when forfeitures occurred. Consequently, during the first quarter of 2007, we recorded a credit of $321,000 reflecting the cumulative effect of the change in accounting principle for forfeitures primarily related to unvested restricted stock that had previously been recognized as stock-based compensation expense without consideration of

 

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forfeitures. No income tax benefit related to the cumulative effect of the change in accounting for stock option forfeitures was recorded as the Company has provided full valuation allowance against its net deferred tax assets.

 

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