Avid 1996 Annual Report Download - page 34

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The Company has seven stock-based compensation plans, which are described above. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation”, which is effective for periods beginning after December 15, 1995. SFAS No. 123 requires that companies
either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value,
or provide pro forma disclosures of net income and earnings per share in the notes to the financial statements. The
Company has adopted the pro forma disclosure provisions of SFAS No. 123 effective in 1996 and has applied Accounting
Principles Board Opinion 25 “Accounting for Stock Issued to Employees” and related Interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation cost for
the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for the awards
under these plans consistent with the methodology prescribed under SFAS No. 123, the Company’s net income (loss) and
earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995
Net Income (Loss) Earnings per Share Net Income Earnings per Share
As Reported $(38,044) $(1.80) $15,439 $0.77
Pro Forma $(46,400) $(2.19) $10,889 $0.53
The fair value of each option granted during 1996 and 1995 is estimated on the date of grant using the Black-Scholes option-
pricing model utilizing the following weighted-average assumptions: (1) zero-coupon U.S. government issues with interest
rates of 6.05% and 6.26%, for 1996 and 1995 respectively, (2) expected option life from vesting of 17 months, (3) expected
stock volatility of 58.31%, and (4) expected dividend yield of 0.0%.
The fair value of the employee stock purchase plans periods during 1996 and 1995 is estimated on the date of the purchase
using the Black-Scholes option-pricing model utilizing the following weighted average assumptions: (1) expected life of 6
months, (2) expected volatility of 58.31%, and (3) expected dividend yield of 0.0%. The risk-free interest rate used in
determining the fair value of the plans was determined to be the rate on a zero-coupon six month U.S. Government issue on
the first day of the offering period for each of the four plan periods. These interest rates ranged from 4.97% to 6.21%. The
amount of compensation expense, net of income taxes related to the Employee Stock Purchase plans, included in the pro
forma net income (loss) and earnings per share detailed above, is approximately $626,000 and $837,000 for 1996 and 1995
respectively.
Information with respect to options granted under all stock option plans is as follows:
1996 1995 1994
Shares Wtd Avg Price
Per Share Shares Wtd Avg Price Per Share Shares
Options outstanding at beginning of
year January 1, 2,986,595 $21.59 2,956,569 2,746,530
Granted 2,273,398 $17.01 1,105,040 $33.60 744,974
Exercised (260,055) $4.56 (741,313) $8.03 (399,082)
Canceled (1,452,582) $30.55 (333,701) $26.26 (135,853)
Options outstanding at end of year
December 31, 3,547,356 $16.18 2,986,595 $21.59 2,956,569
Options exercisable at December 31, 1,237,924 999,602 622,014
Options available for future grant at
December 31, 866,759 821,801 846,825
Weighted average fair value of
options granted during the year $6.93 $15.59