8x8 2011 Annual Report Download - page 51

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ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its employee stock options and stock purchase rights granted under the 1996 Stock Plan, 1996
Director Option Plan, 1999 Nonstatutory Stock Option Plan and the 2006 Stock Plan and stock purchase rights under the 1996
Employee Stock Purchase Plan (collectively “Purchase Plans”) under the provisions of ASC 718 – Stock Compensation. Under
the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of
the award, and is recognized as an expense over the employee’ s requisite service period (generally the vesting period of the
equity grant), net of estimated forfeitures. The Company has elected to adopt the modified prospective transition method as
provided by ASC 718 and, accordingly, financial statement amounts for the prior periods have not been restated to reflect the
fair value method of expensing share-based compensation.
To value option grants and stock purchase rights under the Purchase Plans for stock-based compensation the Company used the
Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation model varies based on
assumptions used for the expected stock prices volatility, expected life, risk free interest rates and future dividend payments.
For fiscal years 2011, 2010 and 2009, the Company used the historical volatility of the Company’ s stock over a period equal to
the expected life of the options to their fair value. The expected life assumptions represent the weighted-average period stock-
based awards are expecting to remain outstanding. These expected life assumptions are established through the review of
historical exercise behavior of stock-based award grants with similar vesting periods. The risk free interest is based on the
closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term equal
to the expected term of the option. The dividend yield assumption is based on the Company’ s history and expectation of future
dividend payout.
Stock-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2010 and 2009 included
both the unvested portion of stock-based awards granted prior to April 1, 2006 and stock-based awards granted subsequent to
April 1, 2006. Stock options granted in periods prior to fiscal 2007 were measured based on ASC 718 (formerly SFAS
No. 123) criteria, whereas stock options granted subsequent to April 1, 2006 were measured based on ASC 718 (formerly
SFAS No. 123(R)) criteria. In conjunction with the adoption of ASC 718, the Company changed its method of attributing the
value of stock-based compensation to expense from the accelerated multiple-option approach to the straight-line single option
method. Compensation expense for all share-based payment awards granted subsequent to April 1, 2006 is recognized using
the straight-line single-option method. Stock-based compensation expense included in fiscal 2011, 2010 and 2009 includes the
impact of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
On January 27, 2009, when the share price of the Company’ s stock closed at $0.55 per share, the Company’ s board of directors
approved the acceleration of unvested stock options to purchase 3,902,186 shares of common stock. 1,737,509 of these shares
are subject to options held by the Company’ s executive officers and directors. These options of the Company’ s executive
officers and directors, taken as a whole, have a weighted average exercise price of $1.06 per share and range from $0.63 to
$1.79 per share, and a weighted average remaining vesting term of 2.85 years. Approximately $1.1 million of the $2.4 million
stock-based compensation charge related to this modification applies to the options held by the Company’ s executive officers
and directors.