Occupy Mall Street
Occupy Mall Street (OMS or the “Company”) is a leading real estate management firm
that owns and manages over 100 shopping malls across the United States. The Company
went public in 2009 and experienced a continued increase in stock price through 2011.
With the sustained growth of the business and rising stock price, OMS developed a
practice of granting annual stock option awards to its executives at the beginning of each
On January 1, 2012, OMS granted 1,000 employee share options that cliff vest after a
four-year service period, with an exercise price of $30 per share. Using the Black-Scholes
pricing model, the Company determined that the grant-date fair-value-based measure of
the awards was $15. On the grant date, the Company’s stock was trading at $30 per share.
On January 1, 2014, to provide additional retention incentive to its employees for the
third and fourth years of service of the 2012 annual grant, OMS will change the terms of
the award by modifying the exercise price to $20 per share. Using the Black-Scholes
pricing model, management determined that the fair-value-based measure of the awards
was $12 after modification and $9 before the terms of the award were modified. The
modification did not affect any of the other terms or conditions of the awards.
Note that no forfeitures are assumed for the purposes of this case.
1. How much compensation cost should OMS recognize in each year of the award’s
2. How would the accounting for these awards change if the modification to the
terms (i.e., exercise price) of the award was made on January 1, 2017, after the
awards have become fully vested?
Additional Case Facts:
Assume the same facts as described above. However, the terms of the award also include
a performance condition in which the awards will vest if cumulative net income over the
four-year vesting period is greater than $10 million. On December 31, 2013, because of
the loss of several tenants, projected cumulative net income over the four-year period had
been revised down to $9 million. As a result, management determined that the
performance condition had become improbable to achieve.
On December 31, 2014, management’s conclusion that the award’s performance
condition was improbable of achievement had not changed. In response to this,
management reduced the performance condition of the original award to $8 million of
cumulative net income over the four-year period. Using the Black-Scholes pricing model,
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Case 13-05c: Occupy Mall Street Page 2
management determined that the fair-value-based measure of the awards was $12 upon
modification. The modification did not affect any of the other terms or conditions of the
awards; thus, the modification did not affect the option’s per-share fair-value-based
Note that OMS had actually achieved $9.2 million of cumulative net income over the
3. How would the December 31, 2013 accounting change if management
determined that the performance condition was improbable of achievement on
December 31, 2013? What would be the cumulative amount of compensation
4. How much compensation cost would management recognize in 2014 and 2015 if
the December 31, 2014, modification resulted in the awards becoming probable
4a. How would the accounting for this modification differ under IFRSs?
Additional Case Facts:
Assume the same facts as described above. However, contemporaneously with the
December 31, 2014, modification, OMS will lose a major tenant to bankruptcy; this loss
will have a detrimental effect on the Company’s financial results for the year ended
December 31, 2014. Even though OMS modified the options to reduce the performance
target, loss of the significant tenant prompts OMS to maintain that the achievement of the
performance target is improbable (i.e., the options are not expected to vest under the
original or modified terms).
5. If the awards continued to be improbable of achievement after modification, how
much cumulative compensation cost would be recognized through December 31,