Annual report pursuant to Section 13 and 15(d)

Share-based Compensation

v2.4.0.6
Share-based Compensation
12 Months Ended
Dec. 31, 2011
Share-based Compensation [Abstract]  
Share-based Compensation
7. Share-based Compensation
Our Amended and Restated 1998 Stock Incentive Plan (“Stock Incentive Plan”) and 2010 Equity Incentive Plan provides for awards which may be granted in the form of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and performance units. Our board of directors periodically approves increases to the number of shares of common stock reserved for issuance under our 2010 Equity Incentive Plan.
Stock Option Plan
Stock options generally vest ratably over four years following the date of grant and expire ten years from the date of the grant. We also grant awards to our directors, generally in the form of stock options, in accordance with the Board of Directors Policy (“Board Plan”). The options generally vest immediately and have a four-year term. Should a director leave the board, we have the right to repurchase shares as if the options vested on a pro rata basis. In 2009, we began issuing options that vest over four years with 75% vesting ratably over 15 quarters and the remaining 25% vesting on the 16th quarter. All outstanding options were granted at exercise prices equal to or exceeding our estimate of the fair market value of our common stock at the date of grant.
In connection with our acquisition of MTS, on August 24, 2011, we assumed 349,693 nonqualified and incentive stock options granted from MTS’s 2005 Equity Incentive Plan (“MTS Plan”) for 96 employees. Assumed options were converted to equivalent share-based awards of RealPage based on the ratio of our fair market value of stock to the fair market value of MTS’s stock on the acquisition date. The number of shares and ratio of exercise price to market price were equitably adjusted to preserve the intrinsic value of the award as of immediately prior to the acquisition. The conversion was accounted for as a modification under the provisions of GAAP which did not result in an incremental increase in the fair value of the assumed option awards. The majority of assumed options vest over a four-year period at a rate of 25% or 20% after one year and then monthly on a straight-line basis thereafter while others vest ratably over a four-year period. Options granted generally are exercisable up to 10 years. No further options will be granted under the MTS Plan.
The following table summarizes stock option transactions under our 2010 Equity Plan, Stock Incentive Plan, MTS Plan and Board Plan:
                         
                    Weighted  
            Range of     Average  
    Number of     Exercise     Exercise  
    Shares     Prices     Price  
Balance at December 31, 2008
    6,234,563     $ 2.00 - 7.00     $ 3.67  
Granted
    2,284,000       6.00       6.00  
Exercised
    (177,891 )     2.00 - 6.00       3.05  
Forfeited/cancelled
    (411,943 )     2.00 - 7.00       4.18  
 
                     
Balance at December 31, 2009
    7,928,729       2.00 - 7.00       4.33  
Granted
    2,460,600       7.50-27.18       10.68  
Exercised
    (778,746 )     2.00- 9.00       3.09  
Forfeited/cancelled
    (479,089 )     2.00-27.18       6.21  
 
                     
Balance at December 31, 2010
    9,131,494       2.00-27.18       6.05  
Granted
    1,477,250       19.73-29.50       24.09  
Assumed MTS Plan
    349,693       0.91-23.29       4.39  
Exercised
    (3,117,058 )     0.91-27.18       4.07  
Forfeited/cancelled
    (548,532 )     4.28-29.50       12.94  
Expired
    (1,379 )     4.28 - 6.00       5.26  
 
                     
Balance, December 31, 2011
    7,291,468     $ 0.91-29.50     $ 9.95  
 
                     
The weighted average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $11.87, $5.19 and $2.63, respectively. The aggregate intrinsic value of stock options exercised in the years ended December 31, 2011, 2010 and 2009 was $68.6 million, $22.9 million and $0.4 million, respectively. The aggregate intrinsic value of outstanding stock options was $112.9 million and $227.2 million as of December 31, 2011 and 2010, respectively. The aggregate intrinsic value of options exercisable was $68.3 million and $133.4 million as of December 31, 2011 and 2010, respectively.
The following table summarizes outstanding stock options that are vested and expected to vest, non-vested and stock options that are currently exercisable.
                                                 
    December 31, 2011     December 31, 2010  
    Fully Vested                     Fully Vested              
    and                     and              
    Expected to                     Expected to              
    Vest     Non-Vested     Exercisable     Vest     Non-Vested     Exercisable  
Number of shares outstanding
    7,274,630       3,809,498       3,481,970       8,744,854       4,211,068       4,920,426  
Weighted average remaining contractual life
    7.20       8.52       5.82       7.05       8.80       5.70  
Weighted average price per share
  $ 9.94     $ 13.82     $ 5.71     $ 5.90     $ 8.65     $ 3.82  
As of December 31, 2011 and 2010, the total future compensation cost related to non-vested stock options to be recognized in the consolidated statement of operations was $24.3 million and $12.7 million, respectively, with a weighted average period over which these awards are expected to be recognized of 2.8 years and 2.1 years, respectively.
The total number of stock options that vested during the year ended December 31, 2011 and 2010 was 1,416,375 and 569,618, respectively. The fair value of these options was $35.8 million and $17.6 million, respectively.
Stock Option Valuation Assumptions
We have utilized the Black-Scholes option pricing model as the appropriate model for determining the fair value of stock-based awards. The awards granted were valued using the following assumptions:
         
Risk-free interest rates
    0.9-5.1 %
Expected option life (in years)
    5-6  
Dividend yield
    0 %
Expected volatility
    49-60 %
Risk-free interest rate. This is the average U.S. Treasury rate (having a term that most closely approximates the expected life of the option) for the period in which the option was granted.
Expected life of the options. This is the period of time that the options granted are expected to remain outstanding.
Dividend yield. We have never declared or paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future.
Expected volatility. Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We arrived at a volatility rate after considering historical and expected volatility rates of publicly traded peers.
Restricted Stock Awards
Restricted stock is an award that entitles the holder to receive shares of our common stock as the award vests. The fair value of each restricted stock award is based on the closing common stock price on the date of grant. Our time-based restricted stock awards generally vest ratably over four years following the date of grant and expire ten years from the date of the grant. Compensation expense for time-based restricted stock awards is recognized over the vesting period on a straight-line basis. We have also granted certain employees performance-based restricted stock awards. These shares vest dependent upon attainment of various levels of performance that equal or exceed targeted levels and generally vest in their entirety two years from the date of grant. Compensation expense for performance-based restricted stock awards is recognized based on the probability of achievement of the performance condition. As of December 31, 2011, there was $22.4 million and $5.7 million of unrecognized compensation cost related to time-based restricted stock awards and performance-based restricted stock awards, respectively. That cost is expected to be recognized over a weighted-average period of 3.2 years and 0.8 years, respectively.
A summary of time-based restricted share awards’ activity is presented in the table below.
                 
            Weighted  
    Number of     Average  
    Shares     Price  
Balance at December 31, 2009
    100,000     $ 5.04  
Granted
    274,132       19.21  
Vested
    (51,332 )     5.10  
Forfeited/cancelled
    (1,100 )     27.18  
 
             
Balance at December 31, 2010
    321,700       20.54  
Granted
    1,063,085       23.92  
Vested
    (197,990 )     21.48  
Forfeited/cancelled
    (186,519 )     21.60  
 
             
Balance at December 31, 2011
    1,000,276     $ 24.54  
 
             
A summary of performance-based restricted share awards’ activity is presented in the table below.
                 
            Weighted  
    Number of     Average  
    Shares     Price  
Balance at December 31, 2009
    161,173     $ 5.04  
Granted
    564,000       27.18  
Vested
           
Forfeited/cancelled
    (3,146 )     5.04  
 
           
Balance at December 31, 2010
    722,027       22.33  
Granted
    20,646       25.77  
Vested
    (209,086 )     19.97  
Forfeited/cancelled
           
 
           
Balance at December 31, 2011
    533,587     $ 23.39  
 
           
The aggregate intrinsic value of time-based and performance-based restricted stock awards was $25.2 million and $13.5 million as of December 31, 2011, respectively.
Stock Purchase Warrants
We issued a five-year warrant to purchase 25,000 and 12,500 shares of common stock at $2.00 per share in connection with 2004 and 2005 amendments to our prior credit facility. In May 2009, the warrant to purchase 25,000 shares was automatically net exercised for 15,808 shares of common stock. In March 2010, the warrant to purchase 12,500 shares was automatically net exercised for 8,790 shares of common stock. As of December 31, 2011, we have no warrants outstanding.