8x8 2010 Annual Report Download - page 56

The following table summarizes the distribution of stock-based compensation expense related to employee stock options and
employee stock purchases under ASC 718 among the Company's operating functions for the years ended March 31, 2010, 2009
and 2008 that was recorded as follows (in thousands):
2010 2009 2008
Cost of service revenues $ 20 $ 216 $ 33
Cost of product revenues - 47 18
Research and development 63 542 255
Selling, general and administrative 121 2,490 966
Total stock-based compensation expense
related to employee stock options
and employee stock purchases, pre-tax 204 3,295 1,272
Tax benefit - - -
Stock based compensation expense related to
employee stock options and employee
stock purchases, net of tax
$
204
$
3,295
$
1,272
Years Ended March 31,
ASC 718 requires the Company to calculate the additional paid in capital pool (“APIC Pool”) available to absorb tax
deficiencies recognized subsequent to adopting ASC 718, as if the Company had adopted ASC 718 at its effective date of
January 1, 1995. There are two allowable methods to calculate the Company’s APIC Pool: (1) the long form method as set
forth in ASC 718 (formerly SFAS No. 123(R)) and (2) the short form method as set forth in ASC 718 (formerly FASB Staff
Position No. 123(R)-3). The Company has elected to use the long form method under which the Company tracks each award
grant on an employee-by-employee basis and grant-by-grant basis to determine if there is a tax benefit or tax deficiency for
such award. The Company then compares the fair value expense to the tax deduction received for each grant and aggregated
the benefits and deficiencies to establish the APIC Pool.
Due to the adoption of ASC 718, some exercises result in tax deductions in excess of previously recorded benefits based on the
option value at the time of grant, or windfalls. The Company recognizes windfall tax benefits associated with the exercise of
stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net
operating loss carryforwards resulting from windfall tax benefits occurring from April 1, 2006 onward. A windfall tax benefit
occurs when the actual tax benefit realized by the company upon an employee’s disposition of a share-based award exceeds the
deferred tax asset, if any, associated with the award that the company had recorded. The Company uses the “with and without”
approach as described in ASC 718 (formerly Emerging Issue Task Force (“EITF”) Topic No. D-32), in determining the order
in which its tax attributes are utilized. The “with and without” approach results in the recognition of the windfall stock option
tax benefits only after all other tax attributes of the Company have been considered in the annual tax accrual computation.
Also, the Company has elected to ignore the indirect tax effects of share-based compensation deductions in computing the
Company’s research and development tax and as such, the Company recognizes the full effect of these deductions in the
income statement in the period in which the taxable event occurs.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2009, the FASB issued an amendment to ASC 855 - Subsequent Events (formerly SFAS No. 165, "Subsequent
Events"). The statement is to establish general standards of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued. ASC 855 was effective for interim and annual periods ending after
June 15, 2009. The adoption of ASC 855 did not have a material impact on the Company’s consolidated results of operation
and financial condition.
In July 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-1, "Topic 105 - Generally Accepted
Accounting Principles," ("ASU 2009-1") which amended ASC 105, "Generally Accepted Accounting Principles," to establish
the Codification as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting
standards. All previous references to the superseded standards in our consolidated financial statements have been replaced by
references to the applicable sections of the Codification. The adoption of ASU 2009-1 did not have a material impact on the
Company’s consolidated results of operation and financial condition.
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