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Share-Based Compensation Plans
 12 Months Ended
Dec. 31, 2011
Share-Based Compensation Plans [Abstract]  
Share-Based Compensation Plans

14. Share-Based Compensation Plans

Adoption of Equity Plans

On September 27, 2008 the University’s shareholders approved the adoption of the 2008 Equity Incentive Plan (“Incentive Plan”) and the 2008 Employee Stock Purchase (“ESPP”). A total of 4,200 shares of the University’s common stock was originally authorized for issuance under the Incentive Plan. On January 1 of each subsequent year in accordance with the terms of the Incentive Plan, the number of shares authorized for issuance under the Incentive Plan automatically increased by 2.5% of the number of shares of common stock issued and outstanding on December 31, raising the total number of shares of common stock authorized for issuance under the Incentive Plan to 8,729 shares effective January 1, 2012. Although the ESPP has not yet been implemented, a total of 1,050 shares of the University’s common stock have been authorized for sale under the ESPP.

Incentive Plan

During 2011 and 2010, the University granted time vested options to purchase shares of common stock with an exercise price equal to the fair market value on the date of grant. The time vested options will vest ratably over a period of five years for employees and will expire ten years from the date of grant.

A summary of the activity related to stock options granted under the University’s Incentive Plan is as follows:

 

 

      September 30,       September 30,       September 30,       September 30,  
    Summary of Stock Options Outstanding  
    Total
Shares		     Weighted
Average
Exercise
Price per
Share		     Weighted
Average
Remaining
Contractual
Term (Years)		     Aggregate
Intrinsic
Value ($)(1)		  

Outstanding as of December 31, 2008

     3,247     $ 12.00                  

Granted

     218       16.65                  

Exercised

     (102 )      12.00                  

Forfeited, canceled or expired

     (13 )      12.00                  
   

 

 

                          

Outstanding as of December 31, 2009

     3,350       12.30                  
   

 

 

                          

Granted

     922       21.29                  

Exercised

     (144 )      12.12                  

Forfeited, canceled or expired

     (102 )      17.45                  
   

 

 

                          

Outstanding as of December 31, 2010

     4,026     $ 14.24                  
   

 

 

                          

Granted

     1,250       15.34                  

Exercised

     (140 )      12.00                  

Forfeited, canceled or expired

     (172 )      17.29                  
   

 

 

                          

Outstanding as of December 31, 2011

     4,964     $ 14.47       7.67     $ 7,396  
   

 

 

                          

Exercisable as of December 31, 2011

     2,092     $ 12.90       7.01     $ 6,403  
   

 

 

    

 

 

    

 

 

    

 

 

  

Available for issuance as of December 31, 2011

     2,094                          
   

 

 

                          

 

(1) Aggregate intrinsic value represents the value of the University’s closing stock price on December 31, 2011 ($15.96) in excess of the exercise price multiplied by the number of options outstanding or exercisable.

 

As of December 31, 2011, there was approximately $18,000 of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.1 years.

The following table summarizes information related to stock options exercised for year ended December 31, 2011, 2010 and 2009:

 

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  

Amounts related to options exercised:

                        

Intrinsic value realized by optionee

   $ 403     $ 1,407     $ 656  

Actual tax benefit realized by the University for tax deductions

   $ 161     $ 563     $ 262  

Cash received from stock option exercises during fiscal year 2011, 2010 and 2009 totaled approximately $1,681, $1,747 and $1,226, respectively.

Share-based Compensation Expense

The table below outlines share-based compensation expense for the fiscal years ended December 31, 2011, 2010 and 2009 related to restricted stock and stock options granted:

 

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  

Instructional costs and services

   $ 2,935     $ 2,034     $ 771  

Selling and promotional

     297       233       116  

General and administrative

     3,220       2,782       2,532  
   

 

 

    

 

 

    

 

 

  
       

Share-based compensation expense included in operating expenses

     6,452       5,049       3,419  

Tax effect of share-based compensation

     (2,581 )      (2,020 )      (1,368 ) 
   

 

 

    

 

 

    

 

 

  

Share-based compensation expense, net of tax

   $ 3,871     $ 3,029     $ 2,051  
   

 

 

    

 

 

    

 

 

  

Share-based Compensation Expense Assumptions

Fair Value. The University uses the Black-Scholes-Merton option pricing model to estimate the fair value of the University’s options as of the grant dates using the following weighted average assumptions:

 

 

      September 30,       September 30,       September 30,  

Year Ended December 31,

   2011     2010     2009  

Weighted average fair value

   $ 6.98     $ 10.74     $ 7.99  

Expected volatility

     41.85 %      47.50 %      47.46 % 

Expected life (years)

     6.50       6.50       6.47  

Risk-free interest rate

     2.58 %      2.87 %      2.81 % 

Dividend yield

     0 %      0 %      0 % 

Expected Volatility. As the University’s stock had not been publicly traded prior to November 2008, the expected volatility assumption for the years ended December 31, 2010 and 2009 reflects an average of volatilities of the University’s peer group of public education companies with a period equal to the expected life of the options. Beginning on January 1, 2011, the University believes that the use of Grand Canyon Education, Inc.’s historical stock price provides a more accurate estimate of expected volatility and, consequently, a better estimate of fair value of the University’s stock options. Therefore, the expected volatility assumption for the year ended December 31, 2011 is based upon the University’s historical stock price. This change in estimate did not have a material impact on the University’s operating income, net income or net income per common share.

Expected Life (years). The University continues to use the simplified method to estimate the expected term of stock options under certain circumstances. The simplified method for estimating expected term is to use the mid-point between the vesting term and the contractual term of the share option. The University has analyzed the circumstances in which the use of the simplified method is allowed. The University has elected to use the simplified method for options granted in fiscal year 2011, 2010, and 2009 because the University does not have historical exercise data to estimate expected term due to the limited time period its shares have been publicly traded.

 

Risk-Free Interest Rate. The risk-free interest rate assumption is based upon the U.S. constant maturity treasury rates as the risk-free rate interpolated between the years commensurate with the expected life of the options.

Dividend Yield. The dividend yield assumption is zero since the University does not expect to declare or pay dividends in the foreseeable future.

Forfeitures. Forfeitures are estimated at the time of grant based on historical retention of employees. If necessary, management estimates are adjusted at the end of each reporting period if actual forfeitures differ from those estimates.

Expected Vesting Period. The University amortizes the share-based compensation expense, net of forfeitures, over the expected vesting period using the straight-line method.

Restricted Stock Grants

On March 3, 2009, the University granted 1,307 shares of common stock with a fair value of $15.30 per share, to certain members of the University’s board of directors. The restricted shares have voting rights and vested on March 3, 2010. On May 19, 2009, the University granted 2,491 shares of common stock with a fair value of $14.05 per share, to certain members of the University’s board of directors. The restricted shares have voting rights and vested immediately prior to the 2010 annual stockholders’ meeting. On November 10, 2009, the University granted 1,141 shares of common stock with a fair value of $17.54 per share, to a member of the University’s board of directors. The restricted shares have voting rights and vested on November 10, 2010. On May 18, 2010, the University granted 1,391 shares of common stock with a fair value of $25.16 per share, to certain members of the University’s board of directors. The restricted shares have voting rights and vest on the earlier of May 18, 2011 or immediately prior to the 2011 annual stockholders meeting. On May 18, 2011, the University granted 2,608 shares of common stock with a fair value of $13.42 per share, to certain members of the University’s board of directors. The restricted shares have voting rights and vest on the earlier of May 18, 2012 or immediately prior to the 2012 annual stockholders meeting.

A summary of the activity related to restricted and unrestricted stock granted under the University’s Incentive Plan is as follows:

 

 

      September 30,       September 30,  
    Total
Shares		     Weighted
Average
Grant Date
Fair Value
per Share		  

Outstanding as of December 31, 2008

     109     $ 12.00  

Granted

     9       14.88  

Vested

                

Forfeited, canceled or expired

     —            
   

 

 

          

Outstanding as of December 31, 2009

     118       12.21  
   

 

 

          

Granted

     4       25.16  

Vested

     9       14.88  

Forfeited, canceled or expired

     —            
   

 

 

          

Outstanding as of December 31, 2010

     122     $ 12.66  
   

 

 

          

Granted

     8       13.42  

Vested

     4       25.16  

Forfeited, canceled or expired

     3       13.42  
   

 

 

          

Outstanding as of December 31, 2011

     127     $ 12.69  
   

 

 

          

Vested as of December 31, 2011

     122     $ 12.66  
   

 

 

    

 

 

  

 

401(k) Plan

The University has established a 401(k) Defined Contribution Benefit Plan (the “Plan”). The Plan provides eligible employees, upon date of hire, with an opportunity to make tax-deferred contributions into a long-term investment and savings program. All employees over the age of 21 are eligible to participate in the plan. The Plan allows eligible employees to contribute to the Plan subject to Internal Revenue Code restrictions and the Plan allows the University to make discretionary matching contributions. The University made discretionary matching contributions to the plan of $925, $745 and $522 for the years ended December 31, 2011, 2010 and 2009, respectively.