Note 14—Stock-Based Compensation

Stock-Based Compensation Plans

The Company’s 2005 Stock Option and Incentive Plan, as amended and restated, is intended to provide incentives to executives, employees, directors and consultants of the Company. Incentives available under the 2005 Stock Option and Incentive Plan may include stock options, stock appreciation rights, limited rights, deferred stock units, and restricted stock. In connection with the reclassification and exchange offer, in April 2011, 1.0 million shares of common stock reserved for award under the 2005 Stock Option and Incentive Plan and 0.1 million shares of common stock available for future grants were reclassified into 1.0 million shares of Class B common stock reserved for award and 0.1 million shares of Class B common stock available for future grants. In December 2011, the Company’s stockholders approved an amendment to the 2005 Stock Option and Incentive Plan to increase the number of shares of the Company’s Class B common stock available for the grant of awards by an additional 1.1 million shares. At July 31, 2013, the Company had 5.3 million shares of Class B common stock reserved for award under its 2005 Stock Option and Incentive Plan and 0.6 million shares were available for future grants.

No income tax benefits were recognized in the consolidated statements of income for stock-based compensation arrangements during fiscal 2013, fiscal 2012 or fiscal 2011. In fiscal 2013, there was no tax benefit resulting from tax deductions in excess of the compensation cost recognized for the Company’s stock-based compensation. In fiscal 2012 and fiscal 2011, the Company did not recognize the tax benefits because the deferred tax benefit was fully reserved for due to the uncertainty of future taxable income.

Stock Options

Option awards are generally granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Option awards generally vest on a graded basis over three years of service and have ten-year contractual terms. The fair value of stock options was estimated on the date of the grant using a Black-Scholes valuation model and the assumptions in the following table. No option awards were granted in fiscal 2013 or fiscal 2011. Expected volatility is based on historical volatility of the Company’s Class B common stock and other factors. The Company uses historical data on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments granted. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant.


Year ended July 31	2012
ASSUMPTIONS
Average risk-free interest rate		1.46	%
Expected dividend yield		4.6	%
Expected volatility		66.8	%
Expected term		6.6 years

A summary of stock option activity for the Company is as follows:


	Number of Options (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at July 31, 2012		704		$	16.63
Granted		—			—
Exercised		(62	)		14.92
Cancelled / Forfeited		—			—
OUTSTANDING AT JULY 31, 2013		642		$	16.79		7.5	$	2,665
EXERCISABLE AT JULY 31, 2013		438		$	18.71		5.7	$	1,033

The weighted-average grant date fair value of options granted by the Company during fiscal 2012 was $4.97. The total intrinsic value of options exercised during fiscal 2013 and fiscal 2011 was $0.2 million and $0.4 million, respectively. As of July 31, 2013, there was $1.0 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.3 years.

In August 2013, in connection with the Straight Path Spin-Off, the exercise price of each outstanding option to purchase the Company’s Class B common stock was reduced by 15.29% of the exercise price based on the change in the trading price of the Company’s Class B common stock following the Straight Path Spin-Off. Further, each option holder shared ratably in a pool of options to purchase 32,155 shares of Straight Path Class B common stock. The Company accounted for the August 2013 reduction in the exercise price of the Company’s outstanding stock options and the grant of new options in Straight Path as a modification. The Company determined that there was no incremental value from the modification, therefore, the Company was not required to record a stock-based compensation charge.

On March 26, 2012, the Compensation Committee of the Company’s Board of Directors approved an extension of the expiration dates of all outstanding stock options held by current employees and consultants of the Company. The expiration date of every stock option was extended for three years from the prior scheduled expiration date. The Compensation Committee also approved the issuance of new options in replacement of certain stock options that had recently expired, setting the expiration date of the newly issued stock options three years from the date of the new grant. All newly issued options were fully vested and the exercise prices were unchanged. This extension or replacement applied to options to purchase an aggregate of 0.6 million shares of the Company’s Class B common stock. The Company recorded stock-based compensation expense of $0.3 million in March 2012 for the modification or issuance of the options based on the estimated fair values on March 26, 2012.

On November 22, 2011, there were fully vested outstanding options to purchase 0.5 million shares of the Company’s Class B common stock, with various exercise prices and expiration dates. The exercise prices of all of such options were above the market price for the Company’s Class B common stock on such date. On November 22, 2011, in connection with the Genie Spin-Off, the exercise price of each outstanding option to purchase the Company’s Class B common stock was reduced by 43.8% of the exercise price based on the change in the trading price of the Company’s Class B common stock following the Genie Spin-Off. Further, each option holder shared ratably in a pool of options to purchase 50,000 shares of Genie Class B common stock, meaning that each option holder received an option to purchase one-tenth of a share of Genie Class B common stock for each option to purchase one share of the Company’s Class B common stock held as of the Genie Spin-Off. The Company accounted for the November 2011 reduction in the exercise price of the Company’s outstanding stock options and the grant of new options in Genie as a modification. The Company determined that there was no incremental value from the modification, therefore, the Company was not required to record a stock-based compensation charge.

In April 2011, options to purchase 0.1 million shares of the Company’s Class B common stock that were granted in April 2001 with an expiration date in April 2011 were extended for one year. The Company recorded stock-based compensation expense of $0.3 million in April 2011 for the modification of the options. The fair value of the options was estimated using a Black-Scholes valuation model and the following assumptions: (1) expected volatility of 73% based on the historical volatility of the Company’s Class B common stock and other factors, (2) a discount rate of 0.26%, (3) expected term of one year and (4) no dividends were expected to be paid.

Restricted Stock

The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. The fair value of restricted shares of the Company’s common stock was determined based on the closing price of the Company’s common stock on the grant date. Share awards generally vest on a graded basis over three years of service.

A summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:


(in thousands)	Number of Non-vested Shares			Weighted- Average Grant- Date Fair Value
Non-vested shares at July 31, 2012		2,128		$	7.21
Granted		35			12.69
Vested		(149	)		23.36
Forfeited		(1	)		12.17
NON-VESTED SHARES AT JULY 31, 2013		2,013		$	6.11

As of July 31, 2013, there was $4.7 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over a weighted-average period of 0.8 years. The total grant date fair value of shares vested in fiscal 2013, fiscal 2012 and fiscal 2011 was $3.5 million, $5.7 million and $1.6 million, respectively.

Straight Path IP Group Stock

On September 24, 2012, the Company’s Board of Directors approved a grant of 10% of the equity of the Company’s subsidiary, Straight Path IP Group, to Howard Jonas. These Straight Path IP Group shares vested immediately. The Company recorded stock-based compensation expense of $0.7 million in fiscal 2013 for the grant of these shares, based on the estimated fair value of the shares on the grant date. On March 15, 2011, Straight Path IP Group granted shares of its common stock to two employees of the Company representing 5.5% of Straight Path IP Group’s outstanding equity. These Straight Path IP Group shares vested immediately. In fiscal 2011, the Company recorded stock-based compensation expense of $0.7 million for the grant of these shares. The fair value of the Straight Path IP Group shares was determined using the income approach.