PVSW » Topics » 4. Stock-Based Compensation

This excerpt taken from the PVSW 10-K filed Sep 8, 2008.

Stock-Based Compensation

 

The Company accounts for employee share-based compensation costs, which include stock options and restricted stock, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”) and Staff Accounting Bulletin No. 107, “Share-Based Payment”, using the modified prospective application method. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Historical volatility was used in estimating the fair value of share-based awards rather than implied volatility, while the expected life was estimated to be four years based on historical trends since the Company’s initial public offering. Further, as required under SFAS 123R, the Company now estimates forfeitures for options granted, which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our

 

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Table of Contents
Index to Financial Statements

PERVASIVE SOFTWARE INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

share-based compensation. The estimated fair value is charged to earnings on a straight-line basis over the vesting period of the underlying awards, which is generally four years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options having no vesting restrictions and being fully transferable. Accordingly, the estimate of fair value may not represent the value assigned by a third-party in an arms-length transaction. While the estimate of fair value and the associated charge to earnings materially impacts the Company’s results of operations, it has no impact on its cash position.

 

The Company has elected the alternative transition method described in FASB Staff Position No. FAS 123R-3 for purposes of calculating the pool of excess tax benefits (“APIC pool”) available to absorb tax deficiencies recognized subsequent to the adoption of Statement 123R for employee awards.

 

Cash received from option exercises under all share-based payment arrangements for the years ended June 30, 2006, 2007 and 2008, was $1.8 million, $2.5 million and $0.4 million, respectively. The estimated net tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements was approximately $0.1 million for the year ended June 30, 2006, $0.3 million for the year ended June 30, 2007 and $0.1 million for the year ended June 30, 2008.

 

Total compensation cost recognized in income for stock-based employee compensation awards was approximately $3.0 million, $2.1 million and $1.8 million for the fiscal years ending June 30, 2006, 2007 and 2008, respectively and the total recognized tax benefit related thereto was approximately $0.2 million, nil and nil, respectively.

 

During fiscal 2006, 2007 and 2008, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, assuming no dividends and the following weighted average assumptions:

 

     Employee Stock Options  
     2006     2007     2008  

Risk free interest rate

   4.42 %   4.58 %   2.44 %

Volatility factor

   .92     .71     .46  

Weighted average expected life of options (in years)

   4     4     4  

 

The weighted average estimated grant date fair value, as defined by SFAS 123R, for options granted under the Company’s stock option plan during the years ended June 30, 2006, 2007 and 2008 was $2.83, $2.14 and $1.56 per share, respectively.

 

During fiscal year 2006, 2007 and 2008 the Company issued 600,000, 195,000 and 138,000 shares, respectively, of restricted stock with a weighted average fair value of $4.23, $4.21 and $3.83 per share, respectively. During fiscal year 2007 and 2008, the Company issued 5,000 and 25,000 restricted stock units, respectively. The shares and units are being expensed over their expected lives of three to four years.

 

As of June 30, 2008, $1.2 million, $0.7 million, $0.3 million and $0.1 million of unrecognized compensation cost related to non-vested awards is expected to be recognized in fiscal years 2009, 2010, 2011 and 2012, respectively.

 

This excerpt taken from the PVSW 10-K filed Sep 13, 2007.

Stock-Based Compensation

 

The Company accounts for employee share-based compensation costs, which include stock options and restricted stock, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”) and Staff Accounting Bulletin No. 107, “Share-Based Payment”, using the modified prospective application method. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Historical volatility was used in estimating the fair value of share-based awards rather than implied volatility, while the expected life was estimated to be four years based on historical trends since the Company’s initial public offering. Further, as required under SFAS 123R, the Company now estimates forfeitures for options granted, which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. The estimated fair value is charged to earnings on a straight-line basis over the vesting period of the underlying awards, which is generally four years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options having no vesting restrictions and being fully transferable. Accordingly, the estimate of fair value may not represent the value assigned by a third-party in an arms-length transaction. While the estimate of fair value and the associated charge to earnings materially impacts the Company’s results of operations, it has no impact on its cash position.

 

The Company has elected the alternative transition method described in FASB Staff Position No. FAS 123R-3 for purposes of calculating the pool of excess tax benefits (“APIC pool”) available to absorb tax deficiencies recognized subsequent to the adoption of Statement 123R for employee awards.

 

Cash received from option exercises under all share-based payment arrangements for the years ended June 30, 2005, 2006 and 2007, was $1.6 million, $1.8 million and $2.5 million, respectively. The estimated net tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements was approximately $0.0 million for the year ended June 30, 2005, $0.1 million for the year ended June 30, 2006 and $0.3 million for the year ended June 30, 2007.

 

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Table of Contents
Index to Financial Statements

PERVASIVE SOFTWARE INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following table illustrates the pro forma effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement 123 to stock-based employee compensation in fiscal year 2005 (in thousands, except per share data):

 

     Year Ended
June 30,
2005
 

Net income

   $ 4,009  

Deduct stock-bases compensation expense determined under the fair value based method for all awards, net of related tax effects

     (3,389 )
        

Pro forma net income

   $ 620  
        

Earnings per share, basic:

  

As reported

   $ 0.18  

Pro forma

   $ 0.03  

Earnings per share, diluted:

  

As reported

   $ 0.17  

Pro forma

   $ 0.03  

 

Total compensation cost recognized in income for stock-based employee compensation awards was approximately $3.0 million and $2.1 million for the fiscal years ending June 30, 2006 and 2007, respectively and the total recognized tax benefit related thereto was approximately $0.2 million and $0.0 million, respectively.

 

During fiscal 2005, 2006 and 2007, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, assuming no dividends and the following weighted average assumptions:

 

     Employee Stock Options     Employee Stock
  Purchase Plan  
 
       2005         2006         2007       2005  

Risk free interest rate

   3.58 %   4.42 %   4.58 %   2.72 %

Volatility factor

   1.22     .92     .71     1.22  

Weighted average expected life of options (in years)

   4     4     4     0.5  

 

The weighted average estimated grant date fair value, as defined by SFAS 123R, for options granted under the Company’s stock option plan during the years ended June 30, 2006 and 2007 was $2.83 and $2.14 per share, respectively. For the year ended June 30, 2005, the weighted average estimated grant date fair value for options granted under the Company’s stock option plan was $3.27 per share.

 

During fiscal year 2006 and 2007 the Company issued 600,000 shares and 195,000 shares, respectively, of restricted stock with a weighted average fair value of $4.23 and $4.21 per share, respectively. During fiscal year 2007, the Company issued 5,000 restricted stock units. The shares and units are being expensed over their expected terms of three to four years.

 

As of June 30, 2007, $1.7 million, $1.0 million, $0.4 million and $0.1 million of unrecognized compensation cost related to non-vested awards is expected to be recognized in fiscal years 2008, 2009, 2010 and 2011, respectively.

 

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Table of Contents
Index to Financial Statements

PERVASIVE SOFTWARE INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

This excerpt taken from the PVSW 10-Q filed Feb 5, 2007.

4. Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board “FASB” issued Statement of Financial Accounting Standards 123R ("SFAS 123R"), Share-Based Payment - An Amendment of FASB Statements No. 123 and 95. The Company adopted SFAS 123R effective beginning July 1, 2005 using the modified prospective application transition method. The modified prospective application method requires that companies recognize compensation expense on stock-based payment awards that are modified, repurchased, or cancelled after the effective date. Additionally, compensation cost of the portion of awards of which the requisite service has not been rendered that are outstanding as of the July 1, 2005 shall be recognized as the requisite service is rendered.

The fair value of each award granted from our stock option plan during the three and six months ended December 31, 2006 and 2005 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following weighted average assumptions:

 

    

Three Months Ended

December 31

   

Six Months Ended

December 31

 
     2006     2005     2006     2005  

Expected volatility (based on historical data)

     71.1 %     92.3 %     71.6 %     92.5 %

Expected life in years

     4       4       4       4  

Risk-free interest rate

     4.56 %     4.33 %     4.59 %     4.29 %

Fair value per award

   $ 2.10     $ 2.84     $ 2.12     $ 2.85  

As of December 31, 2006, $3.9 million of unrecognized compensation costs related to non-vested awards is expected to be recognized over the course of the following 4 years.

 

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

4. Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board “FASB” issued Statement of Financial Accounting Standards 123R (“SFAS 123R”), Share-Based Payment - An Amendment of FASB Statements No. 123 and 95. The Company adopted SFAS 123R effective beginning July 1, 2005 using the modified prospective application transition method. The modified prospective application method requires that companies recognize compensation expense on stock-based payment awards that are modified, repurchased, or cancelled after the effective date. Additionally, compensation cost of the portion of awards of which the requisite service has not been rendered that are outstanding as of the July 1, 2005 shall be recognized as the requisite service is rendered.

The fair value of each award granted from our stock option plan during the three months ended September 30, 2006 and 2005 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following weighted average assumptions:

 

    

Three Months Ended
September 30,

2006

   

Three Months Ended
September 30,

2005

 

Expected volatility (based on historical data)

     74.4 %     95.0 %

Expected life in years

     4       4  

Risk-free interest rate

     4.76 %     3.87 %

Fair value per award

   $ 2.26     $ 3.04  

As of September 30, 2006, $4.2 million of unrecognized compensation costs related to non-vested awards is expected to be recognized over the course of the following 4 years.

 

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This excerpt taken from the PVSW 10-Q filed Nov 9, 2005.

4. Stock-Based Compensation

 

In December 2004, the Financial Accounting Standards Board “FASB” issued Statement of Financial Accounting Standards 123R (“SFAS 123R”), Share-Based Payment - An Amendment of FASB Statements No. 123 and 95. This revised standard addresses the accounting for stock-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies are no longer able to account for stock-based compensation transactions using the intrinsic-value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Instead, companies are required to account for such transactions using a fair-value method and recognize the expense in the statement of operations.

 

The Company adopted SFAS 123R effective beginning July 1, 2005 using the modified prospective application transition method. The modified prospective application method requires that companies recognize compensation expense on stock-based payment awards that are modified, repurchased, or cancelled after the effective date. Additionally, compensation cost of the portion of awards of which the requisite service has not been rendered that are outstanding as of the July 1, 2005 shall be recognized as the requisite service is rendered.

 

The impact of adopting SFAS 123R on operating income, net income, and basic and diluted net income per share for the three months ended September 30, 2005 is summarized in the following table (in thousands):

 

     Three Months Ended
September 30, 2005


     Intrinsic
Value
Method


   Fair
Value
Method


Operating income

   $ 993    $ 123

Net income

     1,202      332

Net income per share — basic

     0.05      0.01

Net income per share — diluted

     0.05      0.01

 

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