8x8 2005 Annual Report Download - page 54

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ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25) and related interpretations
thereof. As required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), the Company provides pro forma disclosure of net income and earnings per
share. If the Company had elected to recognize compensation costs based on the fair value at the date of grant of the
awards, consistent with the provisions of SFAS No. 123, net income and earnings per share amounts would have
been as follows (in thousands, except per share amounts):
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based
Payment,” requiring all share-based payments to employees, including grants of employee stock options, to be
recognized as compensation expense in the consolidated financial statements based on their fair values. This
standard includes two transition methods. Upon adoption, the Company will be required to use either the modified
prospective or the modified retrospective transition method. Under the modified prospective method, awards that are
granted, modified, or settled after the date of adoption should be measured and accounted for in accordance with
SFAS No. 123R. Unvested equity-classified awards that were granted prior to the effective date should continue to
be accounted for in accordance with SFAS No. 123 except that amounts must be recognized in the income
statement. Under the modified retrospective approach, the previously-reported amounts are restated (either to the
beginning of the year of adoption or for all periods presented) to reflect the SFAS No. 123 amounts in the income
statement.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107
(“SAB 107”) which provides guidance regarding the application of SFAS No. 123(R). SAB 107 expresses views of
the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the
staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, SAB
107 provides guidance related to share-based payment transactions with non-employees valuation methods
(including assumptions such as expected volatility and expected term), the accounting for certain redeemable
financial instruments issued under share-based payment arrangements, the classification of compensation expense,
first-time adoption of SFAS No. 123(R) in an interim period, capitalization of compensation cost related to share-
based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS No. 123(R), the modification of employee share options prior to adoption of SFAS No.
123(R) and disclosures in Management’s Discussion and Analysis (“MD&A”) subsequent to adoption of SFAS
No. 123(R).
On April 14, 2005, the SEC approved a rule that delays the effective date for SFAS No. 123(R) to annual periods
beginning after June 15, 2005. The adoption of SFAS No. 123(R) on April 1, 2006 is expected to have a material
impact on the Company’s consolidated results of operations. The Company is currently evaluating the impact of
this standard and its transitional alternatives.
COMPREHENSIVE LOSS
Year Ended Mar c h 3 1 ,
2005 2004 2003
Net los s : $ (19,148) $ (3,039) $ (11,403)
Add: Employee stock-based compensation expense
included in reported net income.....................................
.
31,311 1
Deduct: Total employee stock-based compensation
determined pursuant to SFAS No.123........................
.
(2,426) (2,113) (4,446)
Pro forma net los s $ (21,571) $ (3,841) $ (15,848)
As reported net loss per share............................................
.
$ (0.43) $ (0.09) $ (0.40)
Pro forma net loss per share................................................. $ (0.49) $ (0.12) $ (0.56)