13.3 Examples of Required Disclosures
ASC 718-10-55-134 through 55-137 contain examples that illustrate the disclosure requirements
described in ASC 718-10-50-1 through 50-2A (see Sections 13.1 and 13.2).
ASC 718-10
Example 9: Disclosure
55-134 This Example illustrates
disclosures (see paragraphs 718-10-50-1 through 50-2) of a
public entity’s share-based compensation arrangements. The
illustration assumes that compensation cost has been
recognized in accordance with this Topic for several years.
The amount of compensation cost recognized each year
includes both costs from that year’s grants and costs from
prior years’ grants. The number of options outstanding,
exercised, forfeited, or expired each year includes options
granted in prior years. Although this Example focuses on
employee share-based payment plans, the disclosures are
equally applicable to share-based payment awards issued to
nonemployees. An entity should refer to the guidance in
paragraph 718-10-50-2(g) when evaluating whether separate
disclosure of nonemployee share-based payment awards is
warranted.
55-135 On December 31, 20Y1,
the Entity has two share-based compensation plans: The
compensation cost that has been charged against income for
those plans was $29.4 million, $28.7 million, and $23.3
million for 20Y1, 20Y0, and 20X9, respectively. The total
income tax benefit recognized in the income statement for
share-based compensation arrangements was $10.3 million,
$10.1 million, and $8.2 million for 20Y1, 20Y0, and 20X9,
respectively. Compensation cost capitalized as part of
inventory and fixed assets for 20Y1, 20Y0, and 20X9 was $0.5
million, $0.2 million, and $0.4 million, respectively.
Case A: Share Option Plan
55-136 The following
illustrates disclosure for a share option plan.
The Entity’s 20X4 employee share option plan, which is shareholder-approved,
permits the grant of share options and shares to its
employees for up to 8 million shares of common stock. Entity
A believes that such awards better align the interests of
its employees with those of its shareholders. Option awards
are generally granted with an exercise price equal to the
market price of Entity A’s stock at the date of grant; those
option awards generally vest based on 5 years of continuous
service and have 10-year contractual terms. Share awards
generally vest over five years. Certain option and share
awards provide for accelerated vesting if there is a change
in control (as defined in the employee share option plan).
The fair value of each option award is estimated on the date of grant using a lattice-based option
valuation model that uses the assumptions noted in the following table. Because lattice-based option
valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected
volatilities are based on implied volatilities from traded options on Entity A’s stock, historical volatility of
Entity A’s stock, and other factors. Entity A uses historical data to estimate option exercise and employee
termination within the valuation model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation purposes. The expected term of options
granted is derived from the output of the option valuation model and represents the period of time that
options granted are expected to be outstanding; the range given below results from certain groups of
employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of option activity under the employee share option plan as of December 31, 20Y1, and
changes during the year then ended is presented below.
The weighted-average grant-date fair value of options granted during the years 20Y1, 20Y0, and 20X9
was $19.57, $17.46, and $15.90, respectively. The total intrinsic value of options exercised during the
years ended December 31, 20Y1, 20Y0, and 20X9, was $25.2 million, $20.9 million, and $18.1 million,
respectively.
A summary of the status of Entity A’s nonvested shares as of December 31, 20Y1, and changes during
the year ended December 31, 20Y1, is presented below.
As of December 31, 20Y1, there was $25.9 million of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the employee share option plan.
That cost is expected to be recognized over a weighted-average period of 4.9 years. The total fair value
of shares vested during the years ended December 31, 20Y1, 20Y0, and 20X9, was $22.8 million, $21
million, and $20.7 million, respectively.
During 20Y1, Entity A extended the contractual life of 200,000 fully vested share options held by 10
employees. As a result of that modification, the Entity recognized additional compensation expense of
$1.0 million for the year ended December 31, 20Y1.
Case B: Performance Share Option Plan
55-137 The following
illustrates disclosure for a performance share option
plan.
Under its 20X7 performance share option plan, which is
shareholder-approved, each January 1 Entity A grants
selected executives and other key employees share option
awards whose vesting is contingent upon meeting various
departmental and company-wide performance goals, including
decreasing time to market for new products, revenue growth
in excess of an index of competitors’ revenue growth, and
sales targets for Segment X. Share options under the
performance share option plan are generally granted
at-the-money, contingently vest over a period of 1 to 5
years, depending on the nature of the performance goal, and
have contractual lives of 7 to 10 years. The number of
shares subject to options available for issuance under this
plan cannot exceed 5 million.
The fair value of each option grant under the performance
share option plan was estimated on the date of grant using
the same option valuation model used for options granted
under the employee share option plan and assumes that
performance goals will be achieved. If such goals are not
met, no compensation cost is recognized and any recognized
compensation cost is reversed. The inputs for expected
volatility, expected dividends, and risk-free rate used in
estimating those options’ fair value are the same as those
noted in the table related to options issued under the
employee share option plan. The expected term for options
granted under the performance share option plan in 20Y1,
20Y0, and 20X9 is 3.3 to 5.4 years, 2.4 to 6.5 years, and
2.5 to 5.3 years, respectively.
A summary of the activity under the performance share
option plan as of December 31, 20Y1, and changes during the
year then ended is presented below.
The weighted-average grant-date fair value of options
granted during the years 20Y1, 20Y0, and 20X9 was $17.32,
$16.05, and $14.25, respectively. The total intrinsic value
of options exercised during the years ended December 31,
20Y1, 20Y0, and 20X9, was $5 million, $8 million, and $3
million, respectively. As of December 31, 20Y1, there was
$16.9 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements
granted under the performance share option plan; that cost
is expected to be recognized over a period of 4 years.
Cash received from option exercise under all share-based
payment arrangements for the years ended December 31, 20Y1,
20Y0, and 20X9, was $32.4 million, $28.9 million, and $18.9
million, respectively. The actual tax benefit for the tax
deductions from option exercise of the share-based payment
arrangements totaled $11.3 million, $10.1 million, and $6.6
million, respectively, for the years ended December 31,
20Y1, 20Y0, and 20X9.
Entity A has a policy of repurchasing shares on the open
market to satisfy share option exercises and expects to
repurchase approximately 1 million shares during 20Y2, based
on estimates of option exercises for that period.