EMC 2008 Annual Report Download - page 105

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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the adoption of FAS No. 123R, we recorded a credit to the income statement to reflect the impact of a cumulative effect adjustment
for 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
Estimated forfeitures on previously recognized restricted stock expense $ (354)
Income taxes 107
Cumulative effect of a change in accounting principle, net of tax $ (247)
The table below presents the net change in amounts capitalized or accrued in 2008 and 2007 for the following items (in thousands):
Increased (decreased)
during the year ended
December 31, 2008
Increased (decreased)
during the year ended
December 31, 2007
Inventory $ 686 $ 892
Other assets (capitalized software development costs) 16,749 (3,574)
Accrued expenses (accrued warranty expenses) (4,730) (4,423)
As of December 31, 2008, the total unrecognized after-tax compensation cost for stock options, restricted stock and restricted stock units was
$864.3 million. This non-cash expense will be recognized through 2013 with a weighted average remaining period of 1.6 years.
Prior to the adoption of FAS No. 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in
the consolidated statement of cash flows. FAS No. 123R requires the cash flows resulting from excess tax benefits to be classified as financing cash flows,
rather than as operating cash flows.
Fair Value of EMC Information Infrastructure Options
The fair value of each option granted during 2008, 2007 and 2006 is estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
For the Year Ended December 31,
EMC Stock Options 2008 2007 2006
Dividend yield None None None
Expected volatility 34.4% 33.8% 35.2%
Risk-free interest rate 2.8% 3.6% 4.8%
Expected term (in years) 4.4 4.2 4.0
Weighted-average fair value at grant date $ 4.82 $ 6.29 $ 3.80
For the Year Ended December 31,
EMC Employee Stock Purchase Plan 2008 2007 2006
Dividend yield None None None
Expected volatility 40.0% 25.5% 27.6%
Risk-free interest rate 2.6% 5.0% 4.8%
Expected term (in years) 0.5 0.5 0.5
Weighted-average fair value at grant date $ 4.32 $ 3.53 $ 2.89
Expected volatilities are based on our historical stock prices and implied volatilities from traded options in our stock. We use EMC historical data to
estimate the expected term of options granted within the valuation model. The risk-free interest rate was based on a treasury instrument whose term is
consistent with the expected life of the stock options.
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