EMC 2005 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value of stock options granted below fair market value were as follows:
2005 N/A
2004 N/A
2003 $7.13
New Accounting Pronouncements
In December 2004, the FASB issued FAS No. 123R, "Share-Based Payment." Effective on January 1, 2006, we will adopt the provisions of FAS
No. 123R that require us to recognize the fair value of options granted in our basic financial statements.
This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The
adoption of the statement will result in the expensing of the fair value of stock options granted to employees in the basic financial statements. Previously, we
elected to only disclose the impact of expensing the fair value of stock options in the notes to the financial statements.
The statement applies to new equity awards and to equity awards modified, repurchased, or canceled after the effective date. Additionally,
compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date shall be
recognized as the requisite service is rendered on or after the effective date. The compensation cost for that portion of awards shall be based on the grant-date
fair value of those awards as calculated from the pro forma disclosures under Statement No. 123. Changes to the grant-date fair value of equity awards granted
before the effective date of this statement are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the
effective date of this statement using the attribution method that was used under Statement No. 123, which was the straight-line method, except that the
method of recognizing forfeitures only as they occur shall not be continued. Any unearned or deferred compensation (contra-equity accounts) related to those
earlier awards shall be eliminated against the appropriate equity accounts. Additionally, common stock purchased pursuant to stock options granted under our
employee stock purchase plan will be expensed based upon the fair market value of the stock option. The statement also changes the reporting of tax related
amounts within the statement of cash flows. The gross amount of windfall tax benefits resulting from stock-based compensation will be reported as financing
inflows. Under the indirect method of presentation of the statement of cash flows, any shortfalls resulting from the write-off of deferred tax assets will be
reported in net income and classified within the change in deferred income taxes in the operating section of the statement of cash flows.
We plan to adopt the statement on a modified prospective basis beginning January 1, 2006. Accordingly, the results of operations for future periods will
not be comparable to our historical results of operations. The adoption of FAS No. 123R will have a material impact on our results of operations, increasing
cost of sales, SG&A expenses and R&D expenses. We currently estimate that adoption of the statement will reduce diluted earnings per share by
approximately $0.09 in 2006; however, the amount may change based upon the number and value of additional stock option grants and forfeiture rates.
Under the EMC Corporation 2003 Stock Plan (the "2003 Plan"), certain awards granted to an employee who meets the age and/or length of service
requirements for "retirement" set forth in the plan generally will continue to vest after such employee's retirement without additional service, subject to the
terms and conditions of the grant document. In connection with the above reconciliation of net income assuming adoption of FAS No. 123, our policy with
respect to these awards has been to recognize compensation cost over the stipulated vesting period, which is typically five years. If the employee retires before
the end of the vesting period, any remaining unrecognized compensation cost would be recognized at the date of retirement. The SEC has determined that
companies that follow this approach should continue to do so for all applicable equity-based awards issued prior to the effective date of FAS No. 123R. These
awards should also continue to be accounted for in this manner subsequent to the effective date of FAS No. 123R. The cost of applicable equity-based awards
issued subsequent to the effective date of FAS No. 123R, however, should be recognized through the retirement eligibility date. Had we recognized
compensation expense over this shorter service period, the increase in stock compensation costs, net of taxes, presented on a proforma basis under FAS
No. 123 would have been $57.0 million, $29.1 million and $15.5 million for 2005, 2004 and 2003, respectively.
B. Business Acquisitions, Goodwill and Intangible Assets
Acquisition of Captiva
In December 2005, we acquired all of the outstanding capital stock of Captiva. Captiva is a provider of software solutions that capture and manage
business-critical information from paper, faxed and scanned forms and documents, Internet forms and XML data streams, converting them into information
that is usable in database, document, content and other information management
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