Audiovox 2008 Annual Report Download - page 73

Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 29, 2008
(Dollars in thousands, except share and per share data)
s) Accounting for Stock-Based Compensation
The Company has stock option plans under which employees and non-employee directors may be granted incentive
stock options (“ISO's”) and non-qualified stock options (“NQSO's”) to purchase shares of Class A common stock. Under
the stock option plans, the exercise price of the ISO's will not be less than the market value of the Company's Class A
common stock or greater than 110% of the market value of the Company's Class A common stock on the date of grant.
The exercise price of the NQSO's may not be less than 50% of the market value of the Company's Class A common
stock on the date of grant. The options must be exercised no later than ten years after the date of grant. The vesting
requirements are determined by the Board of Directors at the time of grant. Exercised options are issued from authorized
Class A Common Stock. As of February 29, 2008, 1,228,750 shares were available for future grants under the terms of
these plans.
Prior to December 1, 2005, the Company accounted for stock-based employee compensation under the intrinsic value
method as outlined in the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees” (“APB No. 25"), and related interpretations while disclosing pro-forma net income (loss) and pro-forma net
income (loss) per share as if the fair value method had been applied in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under the intrinsic
value method, no compensation expense was recognized if the exercise price of the Company's employee stock options
equaled or exceeded the market price of the underlying stock on the date of grant. The Company issued all stock option
grants with exercise prices equal to, or greater than, the market value of the underlying common stock on the date of
grant. Accordingly, no compensation expense relating to the grant of such options was recognized in the consolidated
statements of operations through November 30, 2005.
Effective December 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) replaces SFAS No. 123 and supersedes APB No. 25.
SFAS 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that
such costs be measured at the fair value of the award at the date of grant and be recognized as an expense over the
requisite service period. Compensation expense related to stock-based awards with vesting terms are amortized using the
straight-line attribution method. This statement was adopted using the modified prospective method, which requires the
Company to recognize compensation expense on a prospective basis for all unvested stock options
outstanding. Therefore, prior period financial statements have not been restated. Under this method, in addition to
reflecting compensation expense for new share-based payment awards, expense is also recognized to reflect the
remaining vesting period of awards that had been included in pro-forma disclosures in prior periods. Since all options
outstanding as of December 1, 2005 were fully vested and exercisable, there was no compensation expense recognized
for options granted prior to the adoption of SFAS No. 123 (R) in the consolidated statement of operations. Prior to
adopting SFAS No. 123(R), the Company presented all tax benefits related to stock-based compensation as an operating
cash inflow, which was $1,357 for the year ended November 30, 2005. SFAS No. 123(R) requires tax benefits related
to stock based compensation be presented as an operating activity outflow and finance activity inflow on a prospective
basis, which was $850 and $896 for the years ended February 29, 2008 and February 28, 2007. In addition, the
Company elected to use the “short cut” method to calculate the historical pool of windfall tax benefits upon adoption of
SFAS No. 123(R), which resulted in no historical pool of windfall tax benefits. The election of the “short cut” method
did not have an impact on the Company’s consolidated financial statements.
The following table illustrates the effect on net loss and net loss per common share as if the Company had measured the
compensation cost for stock option programs under SFAS No. 123 during the year ended November 30, 2005.
F-19
Source: AUDIOVOX CORP, 10-K, May 14, 2008