Avid 2009 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2009 Avid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 97

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97

59
In December 2007, the Company began issuing options to purchase shares of Avid common stock that had vesting based on
market conditions, specifically Avid’s stock price, or a combination of performance and market conditions. The
compensation costs and derived service periods for stock option grants with vesting based on market conditions or a
combination of performance and market conditions are estimated using the Monte Carlo valuation method. For stock option
grants with vesting based on a combination of performance and market conditions, the compensation costs are also
estimated using the Black-Scholes valuation method factored for the estimated probability of achieving the performance
goals, and compensation costs for these grants are recorded based on the higher estimate for each vesting tranche. At
December 31, 2009, the Company had 1,668,760 options outstanding that had vesting based on either market conditions or
a combination of performance and market conditions.
The following table sets forth the weighted-average key assumptions and fair value results for stock options with vesting
based on market conditions or a combination of performance and market conditions granted during the years ended
December 31, 2009, 2008 and 2007:
2009
2008
2007
Expected dividend yield
0.00%
0.00%
0.00%
Risk-free interest rate
3.25%
3.53%
3.93%
Expected volatility
54.3%
40.3%
32.8%
Expected life (in years)
3.79
4.33
4.44
Weighted-average fair value of options granted (per share)
$5.41
$6.44
$6.60
The Company estimates forfeiture rates at the time awards are made based on historical and estimated future turnover rates
and applies these rates in the calculation of estimated compensation cost. The estimation of forfeiture rates includes a
quarterly review of historical turnover rates and an update of the estimated forfeiture rates to be applied to employee
classes for the calculation of stock-based compensation. During 2009, forfeiture rates for the calculation of stock-based
compensation were estimated and applied based on three classes, non-employee directors, executive management staff and
other employees. At December 31, 2009, the Company’s annualized estimated forfeiture rates were 0% for non-employee
director awards and 10% for both executive management staff and other employee awards. Then-current estimated
forfeiture rates are also applied quarterly to all outstanding stock options and non-vested restricted stock awards, which
may result in a revised estimate of compensation costs related to these stock-based grants.
If factors change and the Company employs different assumptions for estimating stock-based compensation expense in
future periods, or if the Company decides to use a different valuation model, the stock-based compensation expense
recognized in future periods may differ significantly from what has been recorded in the current period and could
materially affect the Company’s operating income, net income and earnings per share. It may also result in a lack of
comparability with other companies that use different models, methods and assumptions. The Black-Scholes option-pricing
model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully
transferable. These characteristics are not present in the Company’s option grants.
Stock-based compensation expense of $13.4 million, $14.2 million and $15.9 million, was included in the following
captions in the Company’s consolidated statements of operations for the years ended December 31, 2009, 2008 and 2007,
respectively (in thousands):
2009
2008
2007
Cost of products revenues
$
859
$
616
$
679
Cost of services revenues
1,154
539
829
Research and development expenses
2,454
2,820
4,521
Marketing and selling expenses
3,596
4,005
4,470
General and administrative expenses
5,331
6,221
5,450
$
13,394
$
14,201
$
15,949
At December 31, 2009, there was $26.6 million of total unrecognized compensation cost, before forfeitures, related to non-
vested stock-based compensation awards granted under the Company’s stock-based compensation plans. The Company
expects this amount to be amortized as follows: $12.6 million in 2010, $9.2 million in 2011, $3.9 million in 2012 and $0.9
million in 2013. The weighted-average recognition period of the total unrecognized compensation cost is 1.34 years.