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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2006, 27.9 million shares of restricted stock and restricted stock units were outstanding and unvested, with an aggregate intrinsic
value of $364.1 million and a weighted average remaining contractual life of approximately 3.1 years. These shares and units are scheduled to vest through
2011. Of the total shares of restricted stock and restricted stock units outstanding, 21.5 million shares and units will vest upon fulfilling service conditions, of
which vesting for 19.5 million shares and units will accelerate upon achieving performance conditions. The remaining 6.4 million shares and units will vest
only if certain performance conditions are achieved.
Impact of Adopting FAS No. 123R
The following table summarizes the components of total stock-based compensation expense included in our consolidated income statement in 2006 (in
thousands):
Year Ended December 31, 2006
Stock Options
Restricted
Stock
Total Stock-Based
Compensation
Cost of product sales $ 35,005 $ 6,517 $ 41,522
Cost of services 21,598 3,168 24,766
Research and development 61,582 45,899 107,481
Selling, general and administrative 146,950 77,968 224,918
Restructuring charges 3,801 6,919 10,720
Stock-based compensation expense before income taxes 268,936 140,471 409,407
Income tax benefit 50,559 41,565 92,124
Total stock-based compensation, net of tax $ 218,377 $ 98,906 $ 317,283
Stock option expense includes $30.4 million of expense associated with our employee stock purchase plan. The restructuring charges represent FAS
No. 123R expense associated with our 2006 restructuring program. See Note C for more information.
In connection with the adoption of FAS No. 123R, we recorded a cumulative effect adjustment to recognize compensation costs recorded in our pro
forma equity compensation disclosures that would have been capitalized in our consolidated balance sheet as of January 1, 2006. Additionally, included in the
cumulative effect adjustment was the application of an estimated forfeiture rate on our previously recognized expense on unvested restricted stock and
restricted stock units. The components of the adjustment were as follows (in thousands):
Year Ended
December 31, 2006
Inventory $ 2,505
Capitalized software development costs (included in Other assets) 13,139
Accrued warranty expenses (included in Accrued expenses) (19,896)
Estimated forfeitures on previously recognized restricted stock expense 72
Cumulative effect of a change in accounting principle before taxes (4,180)
Income taxes 808
Cumulative effect of a change in accounting principle, net of tax $ (3,372)
The table below presents the net change in amounts capitalized or accrued in 2006 for the following items (in thousands):
Increased (decreased)
during the year ended
December 31, 2006
Inventory $ 2,630
Other assets (capitalized software development costs) 14,320
Accrued expenses (accrued warranty expenses) (23,935)