STOCK-BASED COMPENSATION

6 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

NOTE 5: STOCK-BASED COMPENSATION

DeVry Group maintains four stock-based incentive plans: the 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan, the Amended and Restated Incentive Plan of 2005 and the Second Amended and Restated Incentive Plan of 2013. Under these plans, directors, key executives and managerial employees are eligible to receive incentive stock or nonqualified options to purchase shares of DeVry Group’s common stock. The Second Amended and Restated Incentive Plan of 2013 and the Amended and Restated Incentive Plan of 2005 also permit the granting of stock appreciation rights, RSUs, performance-based RSUs and other stock and cash-based compensation. Although options remain outstanding under the 1999, 2003 and 2005 incentive plans, no further stock-based grants will be issued from these plans. The Second Amended and Restated Incentive Plan of 2013 and the Amended and Restated Incentive Plan of 2005 are administered by the Compensation Committee of the Board. Options are granted for terms of up to ten years and can vest immediately or over periods of up to five years. The requisite service period is equal to the vesting period. The option price under the plans is the fair market value of the shares on the date of the grant.

Stock-based compensation expense is measured at the grant date based on the fair value of the award. DeVry Group accounts for stock-based compensation granted to retirement eligible employees that fully vests upon an employee’s retirement under the non-substantive vesting period approach. Under this approach, the entire stock-based compensation expense is recognized at the grant date for stock-based grants issued to retirement eligible employees. For non-retirement eligible employees, stock-based compensation expense is recognized as expense over the employee requisite service period, reduced by an estimated forfeiture rate.

At December 31, 2016, 6,814,851 authorized but unissued shares of common stock were reserved for issuance under DeVry Group’s stock-based incentive plans.

 

The following is a summary of options activity for the six months ended December 31, 2016:

					Weighted
			Weighted		Average		Aggregate
			Average		Remaining		Intrinsic
	Number of		Exercise		Contractual		Value
	Options		Price		Life (in Years)		(in thousands)
Outstanding at July 1, 2016		3,574,336	$	32.79
Options Granted		397,700		23.78
Options Exercised		(649,678)		21.61
Options Forfeited		(7,720)		31.01
Options Expired		(23,081)		31.01
Outstanding at December 31, 2016		3,291,557		33.93		5.66	$	12,461
Exercisable at December 31, 2016		2,293,387	$	38.07		4.16	$	4,715

The following is a summary of stock appreciation rights activity for the six months ended December 31, 2016:

					Weighted
	Number of		Weighted		Average		Aggregate
	Stock		Average		Remaining		Intrinsic
	Appreciation		Exercise		Contractual		Value
	Rights		Price		Life (in Years)		(in thousands)
Outstanding at July 1, 2016		118,065	$	42.74
Rights Granted		-		-
Rights Exercised		-		-
Rights Canceled		-		-
Outstanding at December 31, 2016		118,065		42.74		0.92	$	15
Exercisable at December 31, 2016		118,065	$	42.74		0.92	$	15

The total intrinsic value of options exercised for the six months ended December 31, 2016 and 2015 was $3.6 million and $0.1 million, respectively.

The fair value of DeVry Group’s stock option awards was estimated using a binomial model. This model uses historical cancelation and exercise experience of DeVry Group to determine the option value. It also takes into account the illiquid nature of employee options during the vesting period.

The weighted average estimated grant date fair value of options granted at market price under DeVry Group’s stock-based incentive plans during the first six months of fiscal years 2017 and 2016 was $9.09 and $10.17, per share, respectively. The fair value of DeVry Group’s stock option grants was estimated assuming the following weighted average assumptions:

	Fiscal Year
	2017			2016
Expected Life (in Years)		6.88			6.78
Expected Volatility		42.41	%		41.35	%
Risk-free Interest Rate		1.41	%		1.85	%
Dividend Yield		1.19	%		1.01	%
Pre-vesting Forfeiture Rate		10.00	%		3.00	%

The expected life of the options granted is based on the weighted average exercise life with age and salary adjustment factors from historical exercise behavior. DeVry Group’s expected volatility is computed by combining and weighting the implied market volatility, the most recent volatility over the expected life of the option grant and DeVry Group’s long-term historical volatility. The pre-vesting stock option forfeiture rate is based on DeVry Group’s historical stock option forfeiture experience. The main driver for the increased pre-vesting forfeiture rate is the change in the business environment at DeVry Group and its institutions, which has resulted in increased turnover in executive management.

If factors change and different assumptions are employed in the valuation of stock-based grants in future periods, the stock-based compensation expense that DeVry Group records may differ significantly from what was recorded in previous periods.

During the first six months of fiscal year 2017, DeVry Group granted 644,340 RSUs to selected employees and directors. Of these, 221,710 were performance-based RSUs and 422,630 were non-performance-based RSUs. Performance-based RSUs are earned by the recipients over a three-year period based on achievement of certain mission-based, academic goals, when a minimum level of DeVry Group earnings before interest, taxes, depreciation and amortization (“EBITDA”) or return on invested capital (“ROIC”) is attained. Non-performance-based RSUs are subject to restrictions which lapse ratably over one, three or four-year periods on the grant anniversary date based on the recipient’s continued service on the Board or employment with DeVry Group or upon retirement. During the restriction period, the recipient of the non-performance based RSUs shall have the right to receive dividend equivalents. This right does not pertain to the performance-based RSUs. The following is a summary of RSUs activity for the six months ended December 31, 2016:

 

			Weighted
			Average
	Number of		Grant Date
	RSUs		Fair Value
Nonvested at July 1, 2016		1,139,350	$	27.78
RSUs Granted		644,340		23.84
RSUs Vested		(361,964)		27.18
RSUs Forfeited		(43,671)		28.14
Nonvested at December 31, 2016		1,378,055	$	26.09

The weighted average estimated grant date fair value for RSUs granted at market price under DeVry Group’s stock-based incentive plans during the first six months of fiscal years 2017 and 2016 was $23.84 and $26.04, per share, respectively.

 

The following table shows total stock-based compensation expense included in the Consolidated Statements of Income (Loss) (in thousands):

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2016		2015		2016		2015
Cost of Educational Services	$	1,147	$	1,272	$	2,987	$	3,268
Student Services and Administrative Expense		2,436		2,702		6,346		6,944
Stock-Based Compensation Expense		3,583		3,974		9,333		10,212
Income Tax Benefit		(1,251)		(1,514)		(3,283)		(3,718)
Net Stock-Based Compensation Expense	$	2,332	$	2,460	$	6,050	$	6,494

As of December 31, 2016, $25.8 million of total pre-tax unrecognized compensation expense related to nonvested grants is expected to be recognized over a weighted average period of 2.5 years. The total fair value of options and RSUs vested during the six months ended December 31, 2016 and 2015 was approximately $12.8 million and $13.9 million, respectively.

 

There was no capitalized stock-based compensation expense at each of December 31, 2016, June 30, 2016 and December 31, 2015.

DeVry Group has an established practice of issuing new shares of common stock to satisfy stock-based grant exercises. However, DeVry Group also may issue treasury shares to satisfy stock-based grant exercises under certain of its stock-based incentive plans.