Stock Award Plans

12 Months Ended

Dec. 31, 2011

Stock Award Plans [Abstract]

Stock Award Plans

10. Stock Award Plans

The Company's 2011 Stock Incentive Plan ("Plan") provides for the granting of stock options, service-based share awards and performance-based share awards, among other awards. As of December 31, 2011, there were 13 million shares of common stock reserved for issuance under future share-based awards to be granted to any employee, officer or director or independent consultant of the Company at terms and prices to be determined by the Board of Directors, subject to the terms of the Plan.

We recorded stock-based compensation expense as follows:

	Year Ended December 31, 2011		Seven  Months Ended December 31, 2010		Year Ended May 31,
(In thousands)					2010		2009
Total stock-based compensation expense		$40,752		$18,916		$14,849		$5,770

Stock-based compensation expense is reflected in cost of revenue and the functional lines within operating expenses. No stock-based compensation costs were capitalized during the year ended December 31, 2011, seven months ended December 31, 2010 and the years ended May 31, 2010 and 2009. The estimated income tax benefit of stock-based compensation expense included in the provision for income taxes for the year ended December 31, 2011 is $24 million. As of December 31, 2011, $60 million of unearned compensation related to non-vested awards and options was netted against the balance of additional paid in capital and will be recognized over the remaining vesting terms. These costs are expected to be recognized over a weighted average period of 2.5 years.

In connection with the Eclipsys Merger, we assumed all of the outstanding stock options and other stock awards of Eclipsys' respective plans. These stock options and stock awards, as converted based on the same share exchange ratio defined in the Merger Agreement, generally retain all the rights, terms and conditions as originally granted.

We issue service-based awards and performance-based awards in the form of restricted stock units or restricted stock. A description of each category of awards is presented below. Certain prior year weighted-average grant date fair values included in the below tables have been adjusted to present the proper values.

Service-based Share Awards

Service-based share awards include restricted stock units and shares and typically vest over a four-year period commencing on the date of grant subject to continued service to the Company. Upon termination of an employee's employment, any unvested service-based share awards will be forfeited unless otherwise provided in an employee's employment agreement. Deferred share units are awarded to directors and generally vest within one year when issued in lieu of annual share awards or immediately when issued in lieu of cash.

At December 31, 2011, there was $43 million of total estimated unrecognized compensation cost, assuming an estimated forfeiture rate, related to the service-based share awards which is expected to be recognized through December 31, 2015.

Performance-based Share Awards

Performance-based share awards include restricted stock units and shares. The purpose of such awards is to align management with the company's financial performance and other operational objectives and, in certain cases, to retain key employees over a specified performance period. Following is a general description of the two categories of performance-based share awards granted to certain executive officers.

Revenues and Adjusted Operating Income

Awards granted under this category are based on the achievement of targeted revenue and adjusted operating income for the year ended December 31, 2011, both as defined in the grant agreement. The awards are earned based on actual results achieved compared to targeted amounts. Stock-based compensation expense related to these awards will be recognized over a three-year vesting period under the accelerated attribution method.

Total Shareholder Return

Awards granted under this category are dependent on our total shareholder return relative to a specified peer group of companies over a three-year performance period with vesting based on three annual performance segments from the grant date. Fair value of the awards was estimated at the date of grant using the Monte Carlo pricing model. Following completion of the three-year performance period, the Compensation Committee will determine the number of awards that would vest considering overall performance over the three-year performance period. If the number of shares that would vest under this scenario is greater than the amount vesting under the three annual performance segments, then such greater number of awards shall vest, reduced by the number of awards previously vested. Stock-based compensation expense related to these awards will be recognized over a three-year vesting period under the accelerated attribution method.

At December 31, 2011, there was $14 million of total estimated unrecognized compensation cost, assuming an estimated forfeiture rate and 100% target attainment, with the exception of awards granted under the Revenue and Adjusted Operating Income category which assume 71% target attainment, related to the performance-based share awards which is expected to be recognized through August 31, 2015.

The following table summarizes the activity for restricted stock units during the periods presented.

(In thousands, except per share amounts)	Shares			Weighted-Average Grant Date Fair Value
Unvested restricted stock units at May 31, 2009		3,168			$8.65
Awarded		1,502			$17.35
Vested		(925	)		$8.88
Forfeited		(244	)		$12.04
Unvested restricted stock units at May 31, 2010		3,501			$12.13
Awarded		1,227			$17.54
Assumed		502			$16.07
Vested		(1,192	)		$12.33
Forfeited		(375	)		$13.42
Unvested restricted stock units at December 31, 2010		3,663			$14.35
Awarded		2,247			$20.53
Vested		(1,237	)		$13.08
Forfeited		(491	)		$16.03
Unvested restricted stock units at December 31, 2011		4,182			$17.83

No restricted stock units are presented for fiscal year 2008 since unvested awards were assumed in fiscal year 2009 in connection with the 2008 Transactions.

The following table summarizes the activity for restricted stock awards during the periods presented.

(In thousands, except per share amounts)	Shares			Weighted-Average Grant Date Fair Value
Unvested restricted stock awards at May 31, 2010		0			$0.00
Awarded		928			$17.09
Assumed		495			$14.43
Vested		(224	)		$15.06
Forfeited		(31	)		$16.41
Unvested restricted stock awards at December 31, 2010		1,168			$17.20
Vested		(622	)		$16.39
Forfeited		(135	)		$16.77
Unvested restricted stock awards at December 31, 2011		411			$16.95

No restricted stock awards were granted during the years ended May 31, 2010, 2009, and 2008.

Net Share-settlements

Beginning in 2011, upon vesting, restricted stock units and awards are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. The majority of restricted stock units and awards that have vested in 2011 were net-share settled such that we withheld shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. The total shares withheld were 660 thousand for the year ended December 31, 2011, and were based on the value of the restricted stock units and awards on their vesting date as determined by our closing stock price. Total payments for the employees' tax obligations to the taxing authorities are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.

Stock Options

The following table summarizes the status of stock options outstanding and the changes during the periods presented:

(In thousands, except per share amounts)	Options Outstanding			Weighted-Average Exercise Price		Options Exercisable		Weighted-Average Exercise Price
Balance at May 31, 2009		4,222			$5.17		4,222		$5.17
Options exercised		(732	)		$7.79
Options forfeited		(220	)		$18.56
Balance at May 31, 2010		3,270			$3.42		3,270		$3.42
Options exercised		(1,382	)		$7.43
Options assumed		5,865			$13.64
Options forfeited		(78	)		$8.38
Balance at December 31, 2010		7,675			$10.46		6,434		$9.80
Options exercised		(3,469	)		$10.21
Options forfeited		(230	)		$14.49
Balance at December 31, 2011		3,976			$10.31		3,499		$9.87

Accounting guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We estimate the fair value of our share-based payments using the Black-Scholes option-pricing model. Option valuation models, including the Black-Scholes option-pricing model, require the input of assumptions, including stock price volatility. Changes in the input assumptions can materially affect the fair value estimates and ultimately how much we recognize as stock-based compensation expense. The fair value of stock options assumed in the Eclipsys Merger was estimated at the date of acquisition. The weighted average input assumptions used were as follows:

Expected option life (in years)	0.11 – 4.54
Risk-free interest rate	0.17% – 1.36%
Volatility	30.5% – 54.04%
Dividend yield	0%

The expected life input is based on historical exercise patterns and post-vesting termination behavior, the risk-free interest rate input is based on United States Treasury instruments and the volatility input is calculated based on the implied volatility of our common stock.

No stock-based compensation expense related to stock options was recognized during the years ended May 31, 2010 and 2009 since the outstanding stock options were assumed through the 2008 Transactions and fully vested; therefore, any related expense was already recognized.

The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2011 was $35 million and $32 million, respectively, based on Allscripts' closing stock price of $18.94 as of December 31, 2011. The intrinsic value of stock options outstanding represents the amount that would have been received by the option holders had all option holders exercised their stock options as of that date.

The following activity occurred under our plans:

	Year Ended December 31, 2011		Seven Months Ended December 31, 2010		Year Ended May 31,
(In thousands)					2010		2009
Total intrinsic value of stock options exercised		33,016		15,001		13,131		9,097
Total fair value of share awards vested		36,137		27,633		19,976		4,182

Information regarding stock options outstanding at December 31, 2011 is as follows:

(In thousands, except per share amounts) Range of Exercise Prices	Number of Options Outstanding		Weighted- Average Exercise Price		Number of Options Exercisable		Weighted- Average Exercise Price
$0.96 to $5.09		879		$3.17		879		$3.17
$5.13 to $11.50		1,234		$6.60		1,060		$6.39
$12.21 to $14.75		656		$12.53		634		$12.48
$15.99 to $17.83		487		$16.70		244		$16.74
$18.40 to $20.94		720		$18.96		682		$18.97
		3,976				3,499

The weighted average remaining contractual life of the options outstanding and exercisable as of December 31, 2011 is 3.4 years and 3.2 years, respectively.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan ("ESPP") allows eligible employees to authorize payroll deductions of up to 20% of their base salary to be applied toward the purchase of full shares of common stock on the last day of the offering period. Offering periods under the ESPP are three months in duration and begin on each March 1, June 1, September 1, and December 1. Shares will be purchased on the last day of each offering period at a discount of 5% of fair market value of the common stock on such date as reported on NASDAQ. The aggregate number of shares of Allscripts common stock that may be issued under the ESPP may not exceed 500 thousand shares and no one employee may purchase any shares under the ESPP having a collective fair market value greater than $25 thousand in any one calendar year. The shares available for purchase under the ESPP may be drawn from either authorized but previously unissued shares of common stock or from reacquired shares of common stock, including shares purchased by Allscripts in the open market and held as treasury shares.

Allscripts treats the ESPP as a non-compensatory plan in accordance with accounting guidance. There were 140 thousand shares purchased under the ESPP during the year ended December 31, 2011.

Misys Stock Plan

Certain employees of Allscripts previously participated in share-based compensation plans offered by Misys. Awards under the plans include market price awards (options priced at fair value of Misys stock at date of grant) and nil cost awards (zero strike price). Certain of the awards included performance based vesting conditions; otherwise, options vested over a service period that was generally three years. Upon completion of the Coniston Transactions and the related reduction of Misys' ownership interests in Allscripts, the vesting of certain options previously granted to Allscripts' employees was accelerated and the participation of Allscripts' employees in the Misys stock plans terminated. All outstanding options held by employees of Allscripts on August 20, 2010 were assessed to determine the eligible grants that would fully vest as well as the options that would lapse. As a result of the assessment, we recognized expense of approximately $1 million due to the accelerated vesting of options during the seven months ended December 31, 2010. This charge was offset by approximately $1 million for options that were canceled. Stock-based compensation expense was approximately $2 million and $1 million for the years ended May 31, 2010 and 2009, respectively. We recognized no stock-based compensation expense related to the Misys stock plans during the year ended December 31, 2011.

Prior to the completion of the Coniston Transactions, the fair value of share options granted to employees of Allscripts was recorded as compensation cost over the term of vesting period.

The fair value of awards that contain performance-based vesting conditions was estimated at the date of grant using the Monte Carlo option pricing model. For all other awards, the fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model.

The following assumptions have been used in the option pricing models:

	Seven Months Ended December 31, 2010	Year Ended May 31,
		2010	2009
Risk-free interest rate	1.22%	2.04%	3.1% to 5.0%
Dividend yield	0%	0%	0%
Volatility
Market value awards	N/A	N/A	N/A
Nil cost awards	47%	46%	39% to 42%
Expected life (years)
Market value awards	N/A	N/A	N/A
Nil cost awards	3	3	1to 3

Volatility was calculated using Misys share price history for the period equivalent to the expected life. For awards with performance-based service conditions, vesting is tied to either total shareholder return, Misys earnings per share or Misys stock price. Additional variables used in the Monte Carlo option pricing model related to market benchmarked performance conditions include volatility of N/A, 42%, and 33% and a correlation coefficient of N/A, N/A, and 0.30, for the seven months ended December 31, 2010, and the years ended May 31, 2010 and 2009, respectively.

Additional information with respect to the plan activity related to Allscripts for year ended December 31, 2011, the seven months ended December 31, 2010 and for the years ended May 31, 2010 and 2009 is summarized as follows:

	Nil Costs					Market Value
(In thousands, except per share amounts)	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Exercise Price		Weighted-Average Grant Date Fair Value
At May 31, 2008		1,832					5,272			$5.67
Granted		3,033			$0.95		0			$0.00		$0.00
Exercised		(439	)				0			$0.00
Canceled or expired		(577	)				(2,054	)		$3.95
Transfers		66					414			$2.20
At May 31, 2009		3,915					3,632			$2.25
Granted		24			$2.76		0			$0.00		$0.00
Exercised		(487	)				(113	)		$2.76
Canceled or expired		(193	)				(950	)		$4.28
Transfers		312					548			$2.94
At May 31, 2010		3,571					3,117			$4.02
Granted		9			$4.14		0			$0.00		$0.00
Exercised		(1,817	)				(991	)		$3.31
Canceled or expired		(1,741	)				(1,087	)		$5.16
At December 31, 2010		22					1,039			$4.19
Exercised		0					(585	)		$4.12
Canceled or expired		0					(450	)		$4.69
Transfers		(22	)				(4	)		$5.57
At December 31, 2011		0					0			$0.00
Options exercisable		0					0			$0.00

The weighted-average fair value of all options granted during the seven months ended December 31, 2010, and the years ended May 31, 2010 and 2009, was $4.14, $2.76, and $0.95 per share, respectively. The total intrinsic value of options exercised during the year ended December 31, 2011, the seven months ended December 31, 2010 and for the years ended May 31, 2010 and 2009 was $1 million, $20 million, $9 million and $6 million, respectively.