Share-Based Compensation

12 Months Ended

Mar. 31, 2012

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

14.

SHARE-BASED COMPENSATION

On July 28, 2011, Agilysys’ shareholders approved the 2011 Stock Incentive Plan (the “2011 Plan”). Under the 2011 Plan, we may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights (“SSARs”), restricted shares, and restricted share units for up to 3.0 million common shares. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2011 Plan is 1.0 million. The maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 400,000 shares, and the maximum number of shares subject to stock options or SSARs that may be granted to an individual in a calendar year is 800,000 shares.

For stock options and SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs awards vest over a period established by the Compensation Committee of the Board of Directors. SSARs may be granted in conjunction with, or independently from, a stock option granted under the 2011 Plan. SSARs granted in connection with a stock option are exercisable only to the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the related stock option.

Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, subject to the same forfeiture provisions that apply to the underlying awards. Subject to certain exceptions set forth in the 2011 Plan, for awards to employees, no performance-based restricted shares or restricted share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted share units shall have a minimum restriction period of three years.

We have a shareholder-approved 2006 Stock Incentive Plan (the “2006 Plan”), as well as, a 2000 Stock Option Plan for Outside Directors and a 2000 Stock Incentive Plan that both still have vested awards outstanding. Awards are no longer being granted from these incentive plans.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.

We record compensation expense related to stock options, stock-settled stock appreciation rights, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and performance share awards is based on the closing price of our common shares on the grant date. The fair value of stock option and stock-settled appreciation right awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.

The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the Consolidated Statements of Operations for fiscal 2012, 2011 and 2010:

	Year ended March 31,
(In thousands)	2012		2011		2010
Product development	$	257	$	155	$	107
Selling and marketing		244		197		137
General and administrative		2,395		2,460		1,703
Share-based compensation expense		2,896		2,812		1,947
Income tax benefits related to stock options exercised		—		—		(9	)
Total share-based compensation, net of taxes	$	2,896	$	2,812	$	1,938

Stock Options

No stock options were granted during fiscal 2012, fiscal 2011 or fiscal 2010.

The following table summarizes the activity during fiscal 2012 for stock options awarded under the 2006 Plan and prior plans:

(In thousands, except share and per share data)	Number of Options			Weighted Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
				(per share)		(in years)
Outstanding at April 1, 2011		1,666,501		$	11.43
Exercised		(380,000	)		3.20
Cancelled/expired		(315,500	)		14.89
Outstanding and exercisable at March 31, 2012		971,001		$	13.52		4.15	$	708

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $8.99 closing price of our common shares on March 31, 2012 over the exercise price of the stock option, multiplied by the number of stock options outstanding and exercisable.

The following table presents additional information related to stock option activity during the fiscal years ended March 31, 2012, 2011 and 2010:

(In thousands)	2012		2011		2010
Compensation expense	$	—	$	150	$	512
Proceeds from stock options exercised		210		113		88
Income tax benefit related to stock options exercised:
Classified in operating activities in the Consolidated Statements of Cash Flows		—		—		(9	)
Classified in financing activities in the Consolidated Statements of Cash Flows		—		—		9
Total intrinsic value of stock options exercised		2,070		158		286
Total fair value of stock options vesting		—		532		905

The fiscal 2011 expense included $26,000 for the accelerated vesting of stock option expense due to a change in control provision contained in the original award agreements that was triggered by MAK Capital and its affiliates reaching 20% ownership in Agilysys during the first quarter of fiscal 2011. As a result, we do not have any remaining unrecognized stock based compensation expense related to non-vested stock options.

A total of 247,474 shares, net of 91,784 shares withheld to cover the applicable exercise price of the award and 40,742 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle stock options exercised during fiscal 2012. The shares withheld were returned to treasury shares.

As discussed in Note 10, Income Taxes, in fiscal 2012 and 2011, we were in a net operating loss position for U.S. federal income taxes. Therefore, we did not recognize and will not recognize an income tax benefit related to stock options exercised until that tax benefit can be realized.

Stock-Settled Stock Appreciation Rights

Stock-Settled Appreciation Rights (“SSARs”) are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys.

We use a Black-Scholes-Merton option pricing model to estimate the fair value of SSARs. The following table summarizes the principal assumptions utilized in valuing SSARs granted in fiscal 2012, 2011 and 2010:

	2012	2011	2010
Expected dividend yield	0%	0%	0% - 1.57%
Risk-free interest rate	0.83% - 2.09%	0.96% - 1.94%	1.81% - 3.23%
Expected life (in years)	4.5	4.5	4.5 - 7
Expected volatility	80.75% - 82.20%	76.66% - 81.92%	65.43% - 69.83%
Weighted-average grant date fair value	$4.73	$3.94	$3.59

The dividend yield reflects our historical dividend yield on the date of the award. On August 5, 2009, our Board of Directors voted to eliminate the payment of cash dividends on Agilysys common shares. Awards granted after August 5, 2009 were valued using a zero percent dividend yield, which is the yield expected during the life of the award. The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The expected life is estimated using the historical data representing the period of time the awards are expected to be outstanding. The estimated fair value of the SSARs granted, less expected forfeitures, is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date.

The following table summarizes the activity during the fiscal year ended March 31, 2012 for SSARs awarded under the 2011 and the 2006 Plan:

(In thousands, except share and per share data)	Number of Rights			Weighted -Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
				(per right)		(in years)
Outstanding at April 1, 2011		1,317,684		$	6.50
Granted		325,246			7.57
Exercised		(837,539	)		6.42
Forfeited		(93,824	)		7.71
Cancelled/expired		(104,733	)		7.02
Outstanding at March 31, 2012		606,834		$	6.91		6.63	$	1,265
Exercisable at March 31, 2012		443,706		$	6.64		5.59	$	1,042

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $8.99 closing price of our common shares on March 31, 2012 over the exercise price of the SSARs, multiplied by the number of SSARs outstanding or outstanding and exercisable.

The following table presents additional information related to SSARs activity during the fiscal years ended March 31, 2012, 2011 and 2010:

(In thousands)	2012		2011		2010
Compensation expense	$	1,872	$	1,718	$	674
Total intrinsic value of SSARs exercised	$	1,871	$	189	$	—
Total fair value of SSARs vesting	$	3,197	$	1,708	$	532

The compensation expense recorded in the first quarter of fiscal 2012 included $1.4 million for the accelerated vesting of SSARs expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of March 31, 2012, total unrecognized stock based compensation expense related to non-vested SSARs was $0.5 million, which is expected to be recognized over a weighted-average vesting period of 2.1 years.

A total of 108,678 shares, net of 21,791 shares withheld to cover the exercise price on certain incentive stock options exercised and 80,916 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during fiscal 2012. The shares withheld were returned to treasury shares.

As discussed in Note 10, Income Taxes, in fiscal 2012 and 2011, we were in a net operating loss position for U.S. federal income taxes. Therefore, we did not recognize and will not recognize an income tax benefit related to SSARs until that tax benefit can be realized.

Restricted Shares

We granted shares to certain of our Directors and executives under the 2011 Plan, the vesting of which is service-based. The following table summarizes the activity during the year ended March 31, 2012 for restricted shares awarded under the 2011 Plan:

	Number of shares			Weighted -Average Grant-Date Fair Value
				(per share)
Outstanding at April 1, 2011		35,000		$	8.18
Granted		173,286			7.57
Vested		(116,911	)		7.55
Forfeited		(42,817	)		7.87
Outstanding at March 31, 2012		48,558		$	7.80

The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. During the fiscal 2012, a total of 23,083 net of 15,891 shares were withheld from the vested restricted shares to cover the employee’s minimum applicable income taxes. The shares withheld were returned to treasury shares.

The following table presents additional information related to restricted stock activity during the fiscal years ended March 31, 2012, 2011, and 2010:

(In thousands)	2012		2011		2010
Compensation expense	$	920	$	770	$	683
Total fair value of restricted share vesting	$	976	$	633	$	1,112

Compensation expense related to restricted share awards is recognized ratably over the restriction period based upon the closing market price of our common shares on the grant date. The fiscal 2012 compensation expense included $0.1 million for the accelerated vesting of restricted stock expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of March 31, 2012, total unrecognized stock based compensation expense related to non-vested restricted stock was $0.3 million, which is expected to be recognized over a weighted-average vesting period of 1.9 years. We do not include restricted stock in the calculation of earnings per share until the shares are vested.

Performance Shares

In fiscal 2010, we granted shares to certain of our executives under the 2006 Plan, the vesting of which is contingent upon meeting various company-wide performance goals as of March 31, 2010. The earned performance shares vest over three years. The weighted-average grant date fair value of the performance share grants was determined based on the closing market price of our common shares on the grant date and assumed that performance goals would be met at target.

The following table summarizes the activity during the year ended March 31, 2012 for performance shares awarded under the 2006 Plan:

	Number of shares			Weighted -Average Grant-Date Fair Value
				(per share)
Outstanding at April 1, 2011		49,438		$	6.83
Vested		(49,438	)		6.83
Outstanding at March 31, 2012		—		$	—

The weighted-average grant date fair value of the performance shares is determined based upon the closing price of our common shares on the grant date. During the fiscal 2012, a total of 31,209, net of 18,529 shares were withheld from the vested performance shares to cover the employee’s minimum applicable income taxes. The shares withheld were returned to treasury shares.

The following table presents additional information related to performance share activity during the fiscal years ended March 31, 2012, 2011, and 2010:

(In thousands)	2012		2011		2010
Compensation expense	$	104	$	174	$	78
Total fair value of performance share vesting	$	337	$	814	$	—

Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is recognized ratably over the vesting period based upon the closing market price of our common shares on the grant date. The fiscal 2012 compensation expense included $0.2 million for the accelerated vesting of performance share expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As a result, subsequent to May 31, 2011, there was no remaining unrecognized stock based compensation expense related to non-vested performance shares.