Share-based Compensation | 6 Months Ended |
Jun. 30, 2014 |
Share-based Compensation | ' |
(10) Share-based Compensation |
In September 2013, the Board of Directors approved the Company’s 2013 Stock Incentive Plan (the “2013 Plan”), under which the Company’s employees, officers, directors, and other eligible participants may be awarded various types of share-based compensation. In April 2014, the Company’s stockholders approved the 2013 Plan at the Company’s annual meeting. |
In September 2013, the Board of Directors also authorized 600,000 shares of the Company’s class A common stock for issuance under the 2013 Plan. In April 2014, the Board of Directors authorized, subject to stockholder approval, an amendment to the 2013 Plan to increase the total number of shares of the Company’s class A common stock authorized for issuance under the 2013 Plan from 600,000 to 1,500,000 shares. Also in April 2014, the Compensation Committee of the Board of Directors (the “Compensation Committee”) authorized, subject to stockholder approval, an additional amendment to the 2013 Plan to provide for automatic annual stock option grants to each of the Company’s non-employee directors with respect to 5,000 shares of the Company’s class A common stock, beginning in 2015. The Company considers stockholder approval of both amendments to the 2013 Plan to be perfunctory since the Company’s Chairman and Chief Executive Officer holds a majority of the total voting power of all the Company’s outstanding voting stock. |
In April and May 2014, the Compensation Committee approved, in each case subject to stockholder approval of the amendment to the 2013 Plan to increase the total number of shares authorized for issuance, the grant of stock options to purchase an aggregate of 660,000 shares of class A common stock to certain Company executives and directors pursuant to the 2013 Plan. These awards, and any additional awards granted prior to stockholder approval, will be terminated or forfeited if stockholder approval is not obtained within 12 months of the date of grant of the awards, and no award may be exercised or settled prior to such stockholder approval. However, the Company expects to obtain stockholder approval of both amendments to the 2013 Plan at or before the Company’s annual meeting of stockholders in 2015. In the event stockholder approval is not obtained within 12 months of the grant date of any option awards, the cumulative share-based compensation expense associated with those stock option awards would be reversed. As of June 30, 2014, there were options to purchase 1,260,000 shares of class A common stock outstanding under the 2013 Plan (including the options to purchase 660,000 shares of class A common stock that are subject to stockholder approval of the amendment to the 2013 Plan to increase the total number of shares authorized for issuance) and 240,000 remaining shares of class A common stock authorized for issuance under the 2013 Plan. |
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Shares issued under the 2013 Plan may consist in whole or in part of authorized but unissued shares or treasury shares. Stock options that are granted under the 2013 Plan must have an exercise price equal to at least the fair market value of the Company’s class A common stock on the date of grant, become exercisable as established by the Board of Directors or the Compensation Committee, and expire no later than ten years following the date of grant. The Company recognizes share-based compensation expense associated with such stock option awards on a straight-line basis over the award’s requisite service period (generally, the vesting period). The stock option awards granted to date vest in equal annual installments over an approximately four-year vesting period (unless accelerated upon a change in control event (as defined in the stock option agreement for the applicable award) or otherwise in accordance with provisions of the 2013 Plan or applicable option agreement). |
Share-based compensation expense is based on the fair value of the stock option awards on the date of grant, as estimated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of certain management assumptions, including the expected term, expected stock price volatility, risk-free interest rate, and expected dividend yield. The Company estimates the term over which optionholders are expected to hold their stock options by using the simplified method for “plain-vanilla” stock option awards because the Company’s stock option exercise history does not provide a reasonable basis to compute the expected term for stock options granted under the 2013 Plan. The Company relies exclusively on its historical stock price volatility to estimate the expected stock price volatility over the expected term because the Company believes future volatility is unlikely to differ from the past. In estimating the expected stock price volatility, the Company uses a simple average calculation method. The risk-free interest rate is based on U.S. Treasury securities with terms that approximate the expected term of the stock options. The expected dividend yield is based on the Company’s past cash dividend history and anticipated future cash dividend payments. The expected dividend yield is zero, as the Company has not previously declared cash dividends and does not currently intend to declare cash dividends in the foreseeable future. These assumptions are based on management’s best judgment, and changes to these assumptions could materially affect the fair value estimates and amount of share-based compensation expense recognized. |
Prior to the adoption of the 2013 Plan, the Company had maintained other share-based compensation plans with respect to the Company’s class A common stock (the “Other Stock Incentive Plans”), but had not granted any share-based awards under the Other Stock Incentive Plans since the first quarter of 2004 and is no longer authorized to grant any awards under such plans. As of June 30, 2014, there were no outstanding share-based awards granted under the Other Stock Incentive Plans. |
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The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended June 30, 2014: |
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| | Stock Options Outstanding | |
| | | | | Weighted Average | | | Aggregate | | | Weighted Average | |
| | | | | Exercise Price | | | Intrinsic | | | Remaining Contractual | |
| | Shares | | | Per Share | | | Value | | | Term (Years) | |
Balance as of April 1, 2014 | | | 600 | | | $ | 92.84 | | | | | | | | | |
Granted | | | 660 | | | | 120.9 | | | | | | | | | |
Exercised | | | 0 | | | | 0 | | | | | | | | | |
Forfeited/Expired | | | 0 | | | | 0 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of June 30, 2014 | | | 1,260 | | | $ | 107.54 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Exercisable as of June 30, 2014 | | | 0 | | | $ | 0 | | | $ | 0 | | | | 0 | |
Expected to vest as of June 30, 2014 | | | 1,260 | | | $ | 107.54 | | | $ | 41,683 | | | | 9.5 | |
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Total | | | 1,260 | | | $ | 107.54 | | | $ | 41,683 | | | | 9.5 | |
No stock options vested during the three months ended June 30, 2014. The Company expects all unvested options at June 30, 2014 to fully vest in future years in accordance with their vesting schedules and therefore share-based compensation expense has not been adjusted for any expected forfeitures. The weighted average grant date fair value of stock option awards using the Black-Scholes option pricing model was $54.01 for each share subject to a stock option granted during the three months ended June 30, 2014, based on the following assumptions: |
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| | Three months ended | | | | | | | | | |
| | June 30, | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | |
Expected term of options in years | | | 6.3 | | | | 0 | | | | | | | | | |
Expected volatility | | | 42.4-42.5 | % | | | 0 | % | | | | | | | | |
Risk-free interest rate | | | 2.2-2.3 | % | | | 0 | % | | | | | | | | |
Expected dividend yield | | | 0 | % | | | 0 | % | | | | | | | | |
For the three and six months ended June 30, 2014, the Company recognized approximately $3.1 million and $4.7 million, respectively, in share-based compensation expense from stock options granted under the 2013 Plan. For the three and six months ended June 30, 2013, the Company did not recognize any share-based compensation expense from stock options granted under the 2013 Plan as no options had been granted under such plan. For each of the three and six months ended June 30, 2014 and 2013, the Company did not recognize any share-based compensation expense from stock options granted under the Other Stock Incentive Plans as all such options fully vested in prior years. As of June 30, 2014, there was approximately $54.1 million of total unrecognized share-based compensation expense related to unvested stock options. The Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.6 years. |
During the three and six months ended June 30, 2014, no windfall tax benefits were realized from the exercise of stock options. During the three and six months ended June 30, 2013, the Company was able to recognize and utilize net operating loss carryforwards arising directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting that was generated primarily in prior years under the Other Stock Incentive Plans. Accordingly, stockholders’ equity increased by $23.6 million during the six months ended June 30, 2013. |
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MicroStrategy’s former subsidiary, Angel.com, previously maintained a stock incentive plan under which certain employees, officers, and directors of MicroStrategy and Angel.com were granted options to purchase shares of the class A common stock of Angel.com, subject to the satisfaction of both performance and continued service conditions. Share-based compensation expense would have been recognized over the requisite service period of the award based on the probability of the satisfaction of the performance condition, reduced by the number of awards that were not expected to vest due to the failure to satisfy the continued service condition. In connection with the sale of Angel.com in the first quarter of 2013, the Angel.com stock incentive plan was terminated and all outstanding options thereunder were terminated in exchange for cash payments totaling $8.0 million. Prior to their termination, no share-based compensation expense was recognized for these awards for the three and six months ended June 30, 2013 because the performance condition had not been satisfied. |