EMC 2007 Annual Report Download - page 63

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Under the modified prospective transition method, FAS No. 123R applies to new equity awards and to equity awards modified, repurchased or canceled
after the adoption date. Additionally, compensation cost for the portion of awards granted prior to the adoption date for which the requisite service has not
been rendered as of the adoption date shall be recognized as the requisite service is rendered. The compensation cost for that portion of awards shall be based
on the grant-date fair value of those awards as calculated in the prior period pro forma disclosures under FAS No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123"). Changes to the grant-date fair value of equity awards granted before the effective date are precluded. The compensation cost
for those earlier awards shall be attributed to periods beginning on or after the adoption date using the attribution method that was used under FAS No. 123,
which was the straight-line method. Instead of recognizing forfeitures only as they occur, we now estimate an expected forfeiture rate which is factored in to
determine our annual expense. Deferred compensation which related to those earlier awards has been eliminated against additional paid-in capital. FAS
No. 123R also changed 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.
For stock options, we have selected the Black-Scholes option-pricing model to determine the fair value of our stock option awards. For stock options,
restricted stock and restricted stock units, we recognize compensation cost on a straight-line basis over the awards' vesting periods for those awards which
contain only a service vesting feature. For awards with a performance condition vesting feature, when achievement of the performance condition is deemed
probable we recognize compensation cost on a graded-vesting basis over the awards' expected vesting periods.
We have revised our presentation from filings made prior to the quarter ended June 30, 2007 of the cumulative effect of adopting FAS No. 123R to now
present the impact of recording the pro forma balance sheet amounts related to capitalized software, inventory and accrued warranty costs as a credit to
additional paid-in capital as opposed to a cumulative effect of accounting change that impacted net income, as previously presented. The effect of this change
was immaterial to the consolidated financial statements and increased net income for the full year 2006 by $3.6 million and decreased additional paid-in
capital at January 1, 2006 by the same amount. This change had no impact on the previously reported income before cumulative effect of a change in
accounting principle or on cash flows from operating, financing or investing activities. In connection with the adoption of FAS No. 123R, we recorded a
cumulative effect adjustment in the first quarter of 2006 of $0.2 million related to the application of an estimated forfeiture rate on our previously recognized
expense on unvested restricted stock and restricted stock units.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued FAS No. 157, "Fair Value Measurements" ("FAS No. 157"), which
addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally
accepted accounting principles. FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007 and should be applied prospectively, except in the case of a limited number of financial instruments that require retrospective application. In February
2008, the FASB deferred the implementation of FAS No. 157 for certain non-financial assets and liabilities for fiscal years beginning after November 15,
2008. We are currently evaluating the potential impact of FAS No. 157 on our financial position and results of operations.
In February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of
FAS 115" ("FAS No. 159"). The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair
value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair
value in subsequent reporting periods must be recognized in current earnings. FAS No. 159 is effective for fiscal years beginning after November 15, 2007.
We are currently evaluating the potential impact of FAS No. 159 on our financial position and results of operations.
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