Equity-Based Compensation | 9 Months Ended |
Sep. 30, 2013 |
Equity-Based Compensation | ' |
10. Equity-Based Compensation |
As of September 30, 2013, equity-based compensation awards may be granted to ICG employees, directors and consultants under ICG’s 2005 Omnibus Equity Compensation Plan, as such has been amended from time to time (the “Plan”). Generally, the grants vest over a period from one to four years and expire eight to ten years after the grant date. Most companies in which ICG holds equity ownership interests also maintain their own equity incentive/compensation plans. |
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ICG issues the following types of equity-based compensation to its employees and non-employee directors: (1) stock appreciation rights (SARs), (2) stock options, (3) restricted stock and (4) deferred stock units (DSUs). The following table summarizes the equity-based compensation recognized in the respective periods; that equity-based compensation is included in operating expenses, primarily in the line item “General and administrative” on ICG’s Consolidated Statements of Operations. |
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Equity-Based Compensation (in thousands, except weighted average years): |
| Three Months Ended | | | Nine Months Ended | | | Unrecognized | | | Weighted Average | | | | | | | | | | | | |
September 30, | September 30, | Equity-Based | Years Remaining | | | | | | | | | | | |
| | Compensation | of Equity-Based | | | | | | | | | | | |
| | as of | Compensation as | | | | | | | | | | | |
| 2013 | | | 2012 | | | 2013 | | | 2012 | | | | September 30, 2013 | | | of September 30, 2013 | | | | | | | | | | | | |
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SARs | $ | | 599 | | | $ | | 661 | | | $ | | | 1,801 | | | $ | | 1,887 | | | $ | | | 2,192 | | | | 1.9 | | | | | | | | | | | | |
Restricted Stock | | 1,020 | | | | 737 | | | | 3,446 | | | | 2,134 | | | | 6,794 | | | | 2.3 | | | | | | | | | | | | |
DSUs | | 96 | | | | 87 | | | | 282 | | | | 332 | | | | 160 | | | | 0.4 | | | | | | | | | | | | |
Equity-Based Compensation | | 1,715 | | | | 1,485 | | | | 5,529 | | | | 4,353 | | | | 9,146 | | | | | | | | | | | | | | | | |
Equity-Based Compensation for Consolidated Core Businesses | | 165 | | | | 136 | | | | 510 | | | | 323 | | | | 1,698 | | | | 2.8 | | | | | | | | | | | | |
Equity-Based Compensation | $ | | 1,880 | | | $ | | 1,621 | | | $ | | | 6,039 | | | $ | | 4,676 | | | $ | | | 10,844 | | | | | | | | | | | | | | | | |
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SARs |
Each SAR represents the right of the holder to receive, upon exercise of that SAR, shares of ICG Common Stock equal to the amount by which the fair market value of a share of that Common Stock on the date of exercise of the SAR exceeds the base price of the SAR. The base price is determined by the NASDAQ closing price of ICG’s Common Stock on the date of grant (or the closing price on the next trading day if there are no trades in ICG’s stock on the date of grant). The fair value of each SAR is estimated on the grant date using the Black-Scholes option-pricing model. SARs generally vest over four years, with 25% vesting on the first anniversary of the grant date, and the remaining 75% vesting ratably each month over the subsequent 36 months. |
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Activity with respect to SARs during the three and nine months ended September 30, 2013 and 2012 was as follows: |
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| Three Months Ended September 30, | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | |
| Number | | | Weighted | | | Weighted | | | Number | | | Weighted | | | Weighted | | | | | | | | | | | | | | |
of | Average | Average | of SARs | Average | Average | | | | | | | | | | | | | |
SARs | Base Price | Fair Value | | Base Price | Fair Value | | | | | | | | | | | | | |
Granted | | — | | | $ | | — | | | $ | | — | | | | 500 | | | $ | | 9.84 | | | $ | | 5.23 | | | | | | | | | | | | | | |
Exercised (1) | | 220,874 | | | $ | | 7.59 | | | $ | | 4.55 | | | | 16,000 | | | $ | | 8.41 | | | $ | | 4.96 | | | | | | | | | | | | | | |
Forfeited | | — | | | $ | | — | | | $ | | — | | | | — | | | $ | | — | | | $ | | — | | | | | | | | | | | | | | |
(1) The exercise of SARs listed in this table resulted in the issuance of 55,619 shares of ICG’s Common Stock during the three months ended September 30, 2013. |
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| Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | |
| Number | | | Weighted | | | Weighted | | | Number | | | Weighted | | | Weighted | | | | | | | | | | | | | | | | | | | | | |
of | Average | Average | of SARs | Average | Average | | | | | | | | | | | | | | | | | | | | |
SARs | Base Price | Fair Value | | Base Price | Fair Value | | | | | | | | | | | | | | | | | | | | |
Granted | | — | | | $ | | — | | | $ | | — | | | | 260,125 | | | $ | | 9.23 | | | $ | | 4.89 | | | | | | | | | | | | | | | | | | | | | |
Exercised (1) | | 376,362 | | | $ | | 12.43 | | | $ | | 7.46 | | | | 16,000 | | | $ | | 8.41 | | | $ | | 4.96 | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | 5,346 | | | $ | | 9.95 | | | $ | | 5.39 | | | | 1,598 | | | $ | | 10.54 | | | $ | | 5.83 | | | | | | | | | | | | | | | | | | | | | |
(1) The exercise of SARs listed in this table resulted in the issuance of 99,851 shares of ICG’s Common Stock during the nine months ended September 30, 2013. |
There were 3,956,542 SARs and 4,338,250 SARs outstanding as of September 30, 2013 and December 31, 2012, respectively. The aggregate intrinsic value of the SARs outstanding as of September 30, 2013 and December 31, 2012 were $25.2 million and $16.0 million, respectively. |
Stock Options |
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock options generally vest ratably over four years: 25% vest on the first anniversary of the grant date, and the remaining 75% vest ratably each month over the subsequent 36 months. |
Activity with respect to stock options during the three and six months ended September 30, 2013 and 2012 was as follows: |
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| Three Months Ended September 30, | |
| 2013 | | | 2012 | |
| Number | | | Weighted | | | Weighted | | | Number | | | Weighted | | | Weighted | |
of Stock | Average | Average | of Stock | Average | Average |
Options | Base Price | Fair Value | Options | Base Price | Fair Value |
Exercised | | — | | | $ | | | — | | | $ | | | — | | | | 26,342 | | | $ | | | 7.08 | | | $ | | | 5.07 | |
Expired | | — | | | $ | | | — | | | $ | | | — | | | | 229 | | | $ | | | 8.41 | | | $ | | | 4.96 | |
Forfeited | | — | | | $ | | | — | | | $ | | | — | | | | — | | | $ | | | — | | | $ | | | — | |
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| Nine Months Ended September 30, | |
| 2013 | | | 2012 | |
| Number | | | Weighted | | | Weighted | | | Number | | | Weighted | | | Weighted | |
of Stock | Average | Average | of Stock | Average | Average |
Options | Base Price | Fair Value | Options | Base Price | Fair Value |
Exercised | | — | | | $ | | | — | | | $ | | | — | | | | 56,842 | | | $ | | | 7.71 | | | $ | | | 5.73 | |
Expired | | — | | | $ | | | — | | | $ | | | — | | | | 8,229 | | | $ | | | 10.62 | | | $ | | | 8.16 | |
Forfeited | | — | | | $ | | | — | | | $ | | | — | | | | 21 | | | $ | | | 8.41 | | | $ | | | 4.96 | |
There were 1,750 stock options outstanding as of both September 30, 2013 and December 31, 2012; the aggregate intrinsic value of the stock options outstanding as of both September 30, 2013 and December 31, 2012 was less than $0.1 million. |
SARs and Stock Options Fair Value Assumptions |
ICG estimates the grant date fair value of SARs and stock options using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. Those assumptions include estimating the expected life of the award and estimating volatility of ICG’s stock price over the expected term. Expected volatility approximates the historical volatility of ICG’s Common Stock over the period commensurate with the expected term of the award. The expected term calculation is based on an average of the award vesting term and the life of the award. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the award. Changes in the above assumptions, the estimated forfeitures and/or the requisite service period can materially affect the amount of equity-based compensation recognized on ICG’s Consolidated Statements of Operations. |
The following assumptions were used to determine the fair value of SARs granted to employees and a non-management director by ICG during the three- and nine-month periods ended September 30, 2013 and 2012: |
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| Three and Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | | — | | % | | | 56 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average expected life of SAR (in years) | | — | | | | 6.25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | — | | % | | | 0.92 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | | — | | % | | | 0 | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock |
ICG periodically issues shares of restricted stock to its employees and non-management directors. Recipients of restricted stock do not pay cash consideration for the shares and have the right to vote all shares subject to the grant and receive all dividends with respect to the shares, whether or not the shares have vested. As of September 30, 2013, issued and unvested shares of restricted stock granted to ICG’s employees vest as follows: (1) 53,622 shares of restricted stock vest 25% each year over a four-year period, (2) 51,466 shares of restricted stock vest 12.5% on the nine-month anniversary of the grant date, and the remaining 87.5% every six months subsequent to the first vesting date and (3) 130,440 shares of restricted stock vest upon the achievement of certain performance goals, as discussed below. Additionally, as of September 30, 2013, 962,500 shares of restricted stock granted to ICG’s Chief Executive Officer and ICG’s President vest according to specified service periods, performance goals and market conditions, as discussed below. |
During the nine months ended September 30, 2013, in lieu of their right to receive 50% of their respective target bonus amounts under the ICG 2013 Performance Plan (the “Performance Plan”) in cash, senior ICG employees, including each of ICG’s executive officers, were issued a total of 130,440 shares of restricted stock (the “Performance Shares”) (determined based on the value of 50% of their respective individual target bonuses under the Performance Plan and the closing price of ICG’s common stock of $13.09 per share on March 1, 2013, the date of the restricted stock grant). If and to the extent that an individual’s achievement percentage under the Performance Plan (1) is greater than or equal to 50%, all of that employee’s Performance Shares will vest or (2) is greater than 0% but less than 50%, a portion of that employee’s Performance Shares equal to two times the achievement percentage will vest. As of September 30, 2013, ICG expects all of those performance-based restricted stock awards to vest. |
As of September 30, 2013, outstanding shares of restricted stock granted to ICG’s Chief Executive Officer and ICG’s President vest as follows: (1) 229,168 shares of restricted stock vest in equal installments each November and May through November 9, 2015, (2) 366,666 shares of restricted stock vest based on the achievement of stipulated performance goals related to ICG’s results on or before December 31, 2015, and (3) 366,666 shares of restricted stock vest based on stipulated market thresholds related to ICG’s Common Stock price through December 31, 2015. As of September 30, 2013, ICG does not believe that the stipulated performance goals related to the performance-based restricted stock awards would be probable of achievement in the event that the pending sale of Procurian to Accenture is consummated. Following the closing of the merger between Procurian and Accenture, ICG will determine whether the performance goals related to the performance-based restricted stock awards are improbable of achievement. If ICG determines that the performance-based restricted stock awards will not vest, ICG will reverse any previously-recorded equity compensation cost related to those awards. During the three months ended September 30, 2013, ICG did not record any equity-based compensation related to those performance-based restricted stock awards, but did not reverse any previously recorded equity-based compensation. In the event of a change of control (as defined by the Plan) before December 31, 2015, all of the shares contingent upon the achievement of the financial and stock price metrics would automatically vest, and any unrecognized equity-based compensation expense associated with those awards would be immediately recognized. Additionally, in the event of a change of control during which ICG’s Chief Executive Officer and ICG’s President are terminated, any remaining service-based awards would automatically vest, and any unrecognized equity-based compensation expense associated with those awards would be immediately recognized. The pending sale of Procurian does not constitute a change of control for purposes of vesting any such equity awards. |
During the nine months ended September 30, 2013 and 2012, ICG granted 30,750 shares and 18,750 shares, respectively, of restricted stock under ICG’s Amended and Restated Non-Management Director Compensation Plan (the “Director Plan”), which are included in the table below. See “Non-Management Director Equity-Based Compensation” in this Note 10 for additional details related to vesting. |
Share activity with respect to restricted stock awards for the three and nine months ended September 30, 2013 and 2012 was as follows: |
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| Three Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of | | | Weighted | | | Number of | | | Weighted | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares | Average | Shares | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant Date | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | — | | | $ | | — | | | | — | | | $ | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested | | 8,576 | | | $ | | 9.25 | | | | — | | | $ | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | — | | | $ | | — | | | | — | | | $ | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of | | | Weighted | | | Number of | | | Weighted | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares | Average | Shares | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant Date | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | 168,190 | | | $ | | 13.06 | | | | 116,973 | | | $ | | 9.11 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested | | 146,480 | | | $ | | 10.69 | | | | 68,711 | | | $ | | 10.19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | 10,395 | | | $ | | 10.58 | | | | 375 | | | $ | | 12.15 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
There were 1,228,778 and 1,217,463 shares of restricted stock issued and unvested as of September 30, 2013 and December 31, 2012, respectively. |
Non-Management Director Equity-Based Compensation |
ICG periodically issues DSUs and/or shares of restricted stock to its non-management directors in accordance with the Director Plan. Each DSU represents a share of Common Stock into which that DSU will be converted upon the termination of the recipient’s service at ICG. DSUs issued annually under the Director Plan vest on the one-year anniversary of the grant date. |
Each non-management director is also entitled to receive quarterly cash payments for his service on the Board of Directors and its committees, as applicable, under the Director Plan. Each director may elect to receive DSUs in lieu of all or a portion of those cash fees. Each participating director receives DSUs representing shares of ICG’s Common Stock with a fair market value equal to the relevant cash fees (with such fair market value determined by reference to the closing Common Stock price reported by NASDAQ on the date these cash fees otherwise would have been paid). DSUs received in lieu of cash fees are fully vested at the time they are granted and are settled in shares of ICG’s Common Stock upon the termination of the recipient’s service at ICG. The expense for those DSUs is recorded when the fees to which the DSUs relate are earned and is included in the line item “general and administrative” on ICG’s Consolidated Statements of Operations (but is not reflected in the summarized Equity-Based Compensation table above). |
Share activity with respect to periodically-issued DSUs for the nine months ended September 30, 2013 and 2012 was as follows: |
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| Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of | | | Grant Date | | | Number of | | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DSUs | Fair Value | DSUs | Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | 29,250 | | | $ | | 13.09 | | | | 41,250 | | | $ | | 8.40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested | | 41,250 | | | $ | | 8.40 | | | | 52,500 | | | $ | | 13.32 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
There were 29,250 DSUs and 41,250 DSUs issued and unvested at September 30, 2013 and December 31, 2012, respectively. All 29,250 DSUs issued and unvested at September 30, 2013 are expected to vest during the three months ended March 31, 2014. |
Activity related to grants of DSUs for service in lieu of cash for the three and nine months ended September 30 2013 and 2012 was as follows: |
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| Three Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of | | | Expense | | | Number of | | | Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DSUs | Recognized | DSUs | Recognized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted and vested | | 8,378 | | | $ | | 97 | | | | 9,473 | | | $ | | 88 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of | | | Expense | | | Number of | | | Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DSUs | Recognized | DSUs | Recognized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted and vested | | 23,750 | | | $ | | 288 | | | | 24,724 | | | $ | | 264 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Core Businesses |
All of ICG’s consolidated core businesses issue equity-based compensation awards to their employees. Those awards are most often in the form of stock options that vest over four years. The fair value of the stock option awards is estimated on the grant date using the Black-Scholes option pricing model. The majority of the stock options vest 25% on the first anniversary of the grant date, and the remaining 75% vest ratably each month over the subsequent 36 months. The remaining awards generally vest ratably over four years, with 25% vesting on each anniversary date over that term. |