Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2013 |
STOCK-BASED COMPENSATION | ' |
NOTE 9. STOCK-BASED COMPENSATION |
The Company has a share-based compensation program that provides its Board of Directors with broad discretion in creating equity incentives for employees, officers, non-employees and non-employee board members. This program includes incentive and non-statutory stock option grants and restricted stock units (RSUs) for employees, market-based RSUs for the executive officers and RSUs for non-employee board members pursuant to which such individuals will receive grants immediately following each annual meeting of stockholders. These awards are granted under the stockholder approved 2008 Equity Incentive Plan. Stock option grants under the discretionary grant program generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each month over the next 36 months of continued service. RSU grants generally vest over a one to four-year period. RSU grants to non-employee members of our board vest on the earlier of the first anniversary of the grant date or the date of the Company’s first annual meeting of stockholders following the grant date. These awards are granted under various programs, all of which are approved by the stockholders. Additionally, our Employee Stock Purchase Plan (ESPP) allows employees to purchase shares of common stock at the lower of 85% of the fair market value on the commencement date of the six-month offering period or on the last day of the six-month offering period. |
|
Valuation and Expense Information under Stock-based Compensation |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions: |
|
| Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| 2013 | | | 2012 | | | 2013 | | | 2012 | |
Employee stock option plans: | | | | | | | | | | | | | | | |
Expected life in years | | 4.0 | | | | 4.0 | | | | 4.0 | | | | 4.0 | |
Expected volatility | | 58.7 | | % | | | 71.0 | | % | | | 59.3 | | % | | | 71.0 | | % |
Risk-free interest rate | | 1.0 | | % | | | 0.5 | | % | | | 1.0 | | % | | | 0.5 | | % |
Expected dividends | | none | | | | none | | | | none | | | | none | |
Weighted average fair value | $ | | 2.45 | | | $ | | 2.22 | | | $ | | 2.41 | | | $ | | 2.26 | |
Employee Stock Purchase Plan: | | | | | | | | | | | | | | | |
Expected life in years | | 0.5 | | | | 0.5 | | | | 0.5 | | | | 0.5 | |
Expected volatility | | 31.2 | | % | | | 57.9 | | % | | | 35.8 | | % | | | 63.0 | | % |
Risk-free interest rate | | 0.1 | | % | | | 0.1 | | % | | | 0.1 | | % | | | 0.1 | | % |
Expected dividends | | none | | | | none | | | | none | | | | none | |
Weighted average fair value | $ | | 1.27 | | | $ | | 1.63 | | | $ | | 1.27 | | | $ | | 1.74 | |
Amortization method — The value of options and RSUs are amortized to expense, net of estimated forfeitures, on a straight line basis over the vesting period. |
Expected Life — The expected life of the options represents the estimated period of time until exercised and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. The expected term for the ESPP is based on the term of the purchase period. |
Expected Volatility — The volatility is based on the Company’s historical common stock volatility derived from historical stock price data for historical periods commensurate with the options’ expected life. |
Risk-Free Interest Rate —The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a term equal to the expected life at the date of grant of the options. |
Expected Dividend — The expected dividend is based on our history and expected dividend payouts. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future. |
For the three months ended September 30, 2013 and 2012, 349,906 and 414,927 shares of common stock, respectively, were purchased under ESPP program. For the nine months ended September 30, 2013 and 2012, 915,984 and 932,537 shares of common stock, respectively, were purchased under the ESPP program. At September 30, 2013, the Company had $0.4 million of total unrecognized compensation expense under the ESPP program. The unamortized compensation expense will be amortized on a straight-line basis over a remaining period of approximately 4.5 months. |
|
Stock Option Activity |
The following is a summary of activity under the Company’s stock option plans during the nine months ended September 30, 2013, excluding RSUs (in thousands, except weighted average exercise price and contractual term): |
|
| Number of | | | Weighted | | | Weighted | | | Aggregate | | | | | | | |
Shares | Average | Average | Intrinsic | | | | | | |
| Exercise | Remaining | Value | | | | | | |
| Price per | Contractual | | | | | | | |
| Share | Terms in Years | | | | | | | |
At January 1, 2013 | | 6,434 | | | $ | | 5.78 | | | | | | | | | | | | | | | |
Granted | | 1,076 | | | | 5.29 | | | | | | | | | | | | | | | |
Forfeitures and cancellations | | (663 | ) | | | 8.21 | | | | | | | | | | | | | | | |
Exercised | | (386 | ) | | | 4.16 | | | | | | | | | | | | | | | |
At September 30, 2013 | | 6,461 | | | $ | | 5.54 | | | | 4.81 | | | $ | | 5,051 | | | | | | | |
Vested and expected to vest at September 30, 2013 | | 5,923 | | | $ | | 5.59 | | | | 4.70 | | | $ | | 4,772 | | | | | | | |
Exercisable at September 30, 2013 | | 3,411 | | | $ | | 6.14 | | | | 3.98 | | | $ | | 2,718 | | | | | | | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have received had all option holders exercised their options on September 30, 2013. The aggregate intrinsic value is the difference between the Company’s closing stock price on the last trading day of the quarter ended September 30, 2013 and the exercise price, multiplied by the number of outstanding or exercisable in-the-money options. The aggregate intrinsic value excludes the effect of stock options that have a zero intrinsic value. The total pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option, for the three and nine months ended September 30, 2013 was $350,000 and $502,000, respectively, and $91,000 and $274,000 for the three and nine months ended September 30, 2012, respectively. |
At September 30, 2013, the total unrecognized pre-tax stock-based compensation expense related to stock options, which the Company expects to recognize over the remaining weighted-average vesting period of 2.37 years, was $4.8 million, net of estimated forfeitures. |
|
Restricted Stock Units |
The RSUs that the Company grants to its employees typically vest ratably over a certain period of time, subject to the employee’s continuing service to the Company over that period. RSUs granted to executive officers and non-executive employees typically vest over a four-year period. |
RSUs are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. The cost of the RSUs is determined using the fair value of the Company’s common stock on the date of the grant. Compensation is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Each RSU award granted from the Company’s 2008 Equity Incentive Plan will reduce the number of options available for issuance by 1.5 shares. |
A summary of activity with respect to the Company’s RSUs during the nine months ended September 30, 2013 is as follows: (in thousands, except weighted-average grant date fair value per share): |
|
| Number of Units | | | Weighted-Average | | | | | | | | | | | | | | | | |
Grant Date Fair | | | | | | | | | | | | | | | | |
Value Per Share | | | | | | | | | | | | | | | | |
Outstanding at January 1, 2013 | | 2,794 | | | $ | | 5.36 | | | | | | | | | | | | | | | | |
Granted | | 2,030 | | | | 5.32 | | | | | | | | | | | | | | | | |
Vested | | (1,027 | ) | | | 5.28 | | | | | | | | | | | | | | | | |
Forfeitures and cancellations | | (167 | ) | | | 5.24 | | | | | | | | | | | | | | | | |
Outstanding at September 30, 2013 | | 3,630 | | | $ | | 5.37 | | | | | | | | | | | | | | | | |
Of the 3,630,381 RSUs outstanding as of September 30, 2013, approximately 2,705,578 units are expected to vest after considering the applicable forfeiture rate. |
The aggregate fair value of awards that vested during the three and nine months ended September 30, 2013 was $1.5 million and $5.4 million, respectively, which represents the market value of Silicon Image common stock on the date that the RSUs vested. The grant date fair value of awards that vested during the three and nine months ended September 30, 2013 was $1.2 million and $5.4 million, respectively. The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. |
In August 2012, the Company granted 331,500 RSUs with market-based vesting criteria to executives and certain key employees pursuant to 2008 Plan. These market-based awards vest over four years with 25% of the total number of shares vesting on each anniversary of the grant date. Whether or not they vest is determined by a comparison of the price of the Company’s common stock and the price set by the Company, which ranged from $4.52 to $5.39 over the vesting period. The grant-date fair value of these awards was $1.2 million, estimated using a Monte Carlo simulation method which takes into account the probability that the market conditions of these awards will be achieved. Compensation costs related to these awards will be recognized over the vesting period regardless of whether the market conditions are satisfied, provided that the requisite service has been provided. As of September 30, 2013, 228,375 shares of the outstanding restricted stock units were market-based restricted stock units. |
In August and September 2013, the Company granted 875,000 performance-based restricted stock units (PBRSUs) to executives with vesting based on the Company’s GAAP earnings per share over the vesting period of 4.4 years. Each PBRSU represents the right to receive one share of the Company’s common stock upon the vesting of such PBRSU, and is subject to the terms of the Company’s 2008 Equity Incentive Plan. Any PBRSUs not vesting on a vesting date due to the Company’s GAAP earnings per share for the fiscal year in question not meeting the target for such fiscal year established by the Compensation Committee shall be forfeited. The grant date fair value of these awards was $4.7 million. As of September 30, 2013, the Company expects the earnings per share targets to be met and thus all the PBRSUs less estimated forfeitures are expected to vest. |
At September 30, 2013, the total unrecognized pre-tax stock-based compensation expense related to non-vested RSUs, which the Company expects to recognize over the remaining weighted-average vesting period of 2.57 years, was $11.8 million, net of estimated forfeitures. |
During the three months ended September 30, 2013 and 2012, the Company repurchased 101,123 and 43,988 shares of stock, respectively, for an aggregate value of $0.6 million and $205,000, respectively, from the employees upon the vesting of their RSUs that were granted under the Company’s 2008 Equity Incentive Plan to satisfy the employees’ minimum statutory tax withholding requirement. During the nine months ended September 30, 2013 and 2012, the Company repurchased 364,826 and 436,708 shares of stock, respectively, for an aggregate value of $1.9 million and $2.1 million, respectively, The Company will continue to repurchase shares of stock from employees as their RSUs vest to satisfy the employees’ minimum statutory tax withholding requirement. |
|
Stock Repurchase Program |
|
In April 2012, the Company’s Board of Directors authorized a $50 million stock repurchase program. The repurchases may occur from time to time in the open market or in privately negotiated transactions. The timing and amount of any repurchase of shares will be determined by the Company’s management, based on its evaluation of market conditions, cash on hand and other factors and may be made under a stock repurchase plan. The authorization will stay in effect until the authorized aggregate amount is expended or the authorization is modified by the Board of Directors. The program does not obligate the Company to acquire any particular amount of stock and purchases under the program may be commenced or suspended at any time, or from time to time, without prior notice. Further, the stock repurchase program may be modified, extended or terminated by the Board at any time. In July 2013, the Company’s Board of Directors authorized a new share repurchase plan as a follow-on to its current plan which had $10.3 million remaining for repurchase. At the conclusion of the Company’s existing plan, the Company will commence a new share repurchase plan whereby the Company will be authorized to repurchase its common stock up to an aggregate purchase of $50 million. |
On November 9, 2012, the Company entered into an accelerated share repurchase (ASR) agreement with Barclays Capital, Inc. (Barclays) to repurchase an aggregate of $30.0 million of its common stock. Pursuant to the ASR agreement, the Company paid $30.0 million in November 2012 and received a total of 5,072,463 shares, 750,000 shares and 300,383 shares of its common stock during the year ended December 31, 2012, the three months ended March 31, 2013 and the three months ended June 30, 2013, respectively, which are recorded as treasury stock in the condensed consolidated balance sheet. The ASR agreement was fully settled in June 2013 and the average price of shares repurchased under the ASR was $4.90 per share. |
The Company repurchased 255,963 shares of its common stock on the open market at a total cost of $1.4 million with an average price per share of $5.40 during the three months ended September 30, 2013. The Company repurchased 1,306,346 shares of its common stock on the open market at a total cost of $6.5 million with an average price per share of $5.0 during the nine months ended September 30, 2013. |