Audiovox 2006 Annual Report Download - page 61

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2007
(Dollars in thousands, except share and per-share data)
t) 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 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 28, 2007, 1,402,500 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 SFAS No. 123(R), ‘‘Share-Based
Payment’’ (‘‘SFAS 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. 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 123(R) in the consolidated statement of operations. Prior to adopting SFAS 123(R),
the Company presented all tax benefits related to stock-based compensation as an
operating cash inflow, which was $1,357 and $227 for the years ended November 30, 2005
and 2004, respectively. SFAS 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 $896 for the year ended 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 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.
F-21