APKT » Topics » Stock-Based Compensation

This excerpt taken from the APKT 8-K filed Jul 8, 2009.
Stock-Based Compensation —On January 1, 2006, the Company adopted FASB Statement No. 123(R), Share-Based Payment. FASB Statement No. 123(R) requires that stock-based compensation be measured and recognized as an expense in the consolidated financial statements and that such expense be measured at the grant date fair value. The Company adopted FASB Statement No. 123(R) using the prospective transition method, which requires compensation expense to be recognized on a prospective basis, and therefore, prior-period consolidated financial statements have not been restated. Compensation expense relates to stock-based awards granted, modified, repurchased, or cancelled on or after January 1, 2006. For stock-based awards granted prior to January 1, 2006, the Company, in accordance with the provisions of FASB Statement No. 123(R), accounts for the stock-based awards using the intrinsic value method. Under the intrinsic value method, compensation associated with stock awards to employees was determined as the difference, if any, between the fair value of the underlying stock on the date compensation is measured and the price an employee must pay to exercise the award, if less than the current value on the measurement date.

 

The Company accounts for all stock-based awards to nonemployees in accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services, and FASB Statement No. 123, Accounting for Stock-Based Compensation as amended by FASB Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure — an amendment of FASB Statement No. 123, prior to January 1, 2006, and in accordance with FASB Statement No. 123(R) subsequent to December 31, 2005.

 

The measurement date for employee awards is generally the date of grant. Share-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line

 

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basis for all time-vested awards. The measurement date for nonemployees is generally the date the performance of services is completed.

 

These excerpts taken from the APKT 10-Q filed May 11, 2009.

Stock-Based Compensation

 

Cost of revenue and operating expenses include stock-based compensation expense. Effective January 1, 2006, we adopted the requirements of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share Based Payment. SFAS No. 123(R) addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) requires us to expense share-based payment awards with compensation cost for share-based payment transactions measured at fair value. For the three months ended March 31, 2009 and 2008, we recorded expense of $2.3 million and $1.5 million, respectively, in connection with share-based payment awards. Based on share-based awards granted during the three months ended March 31, 2009 and years 2008, 2007 and 2006, a future expense of non-vested options of $20.5 million is expected to be recognized over a weighted-average period of 2.83 years.

 

Stock-Based Compensation

 

On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires us to recognize expense related to the fair value of stock-based compensation awards.  SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123, Accounting for Stock-Based Compensation, for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, we continue to apply Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees to equity awards outstanding at the date of SFAS No. 123(R)’s adoption that were measured using the minimum value method.

 

Effective with the adoption of SFAS No. 123(R), we elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), we recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

 

As there was no public market for our common stock prior to October 13, 2006, the effective date of the our initial public offering, or IPO, we determined the volatility for options granted in the three months ended March 31, 2009 and 2008 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies as well as the historical volatility of our common stock beginning in January 2007.  The expected life of options has been determined utilizing the “simplified” method as prescribed by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our  historical policy under SFAS No. 123. As a result, we applied an estimated forfeiture rate of 8.27% and 7.74% for the three months ended March 31, 2009 and 2008, respectively, in determining the expense recorded in the accompanying condensed consolidated statements of income.  The weighted-average fair values of options granted were $2.15 and $3.22 for the three months ended March 31, 2009 and 2008, respectively.  The weighted-average assumptions utilized to determine such values are presented in the following table:

 

 

 

Three Months Ended March 31,

 

 

 

2009

 

2008

 

Risk-free interest rate

 

1.79

%

3.15

%

Expected volatility

 

58.00

%

44.13

%

Expected life

 

4.75 years

 

4.75 years

 

Dividend yield

 

 

 

 

We recorded stock-based compensation expense of $2.3 million and $1.5 million for the three months ended March 31, 2009 and 2008, respectively.  As of March 31, 2009, there was $20.5 million of unrecognized compensation expense related to unvested stock awards that is expected to be recognized over a weighted-average period of 2.83 years.

 

These excerpts taken from the APKT 10-K filed Mar 13, 2009.

Stock-Based Compensation

        Cost of revenue and operating expenses include stock-based compensation expense. Effective January 1, 2006, we adopted the requirements of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share Based Payment. SFAS No. 123(R) addresses all forms of shared-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) requires us to expense share-based payment awards with compensation cost for share-based payment transactions measured at fair value. For the years ended December 31, 2008, 2007 and 2006, we recorded expense of $7.4 million, $6.1 million and $867,000, respectively, in connection with share-based payment awards. Based on share-based awards granted in 2008, 2007 and 2006, a future expense of non-vested options of $17.4 million is expected to be recognized over a weighted-average period of 2.36 years.

Stock-Based Compensation

        On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share- Based Payment, which requires us to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123, Accounting for Stock-Based Compensation, for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, we continue to apply Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.

        Effective with the adoption of SFAS No. 123(R), we elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), we recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

        As there was no public market for our common stock prior the effective date of the our IPO, we determined the volatility for options granted in 2008, 2007 and 2006 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies, as well as the historical volatility of our common stock beginning January 2007. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest

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rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our historical policy under SFAS No. 123. As a result, we applied an estimated forfeiture rate of 8.27%, 7.00%, and 11.25% for the years ended December 31, 2008, 2007 and 2006, respectively, in determining the expense recorded in the accompanying consolidated statements of income. We recorded stock-based compensation expense of $7.4 million, $6.1 million and $867,000 for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008, there was $17.4 million of unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted-average period of 2.36 years.

Stock-Based Compensation



        Cost of revenue and operating expenses include stock-based compensation expense. Effective January 1, 2006, we adopted the
requirements of Statement of Financial Accounting Standards, or SFAS, No. 123(R),
Share Based Payment. SFAS No. 123(R) addresses all forms
of shared-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) requires us to
expense share-based payment awards with compensation cost for share-based payment transactions measured at fair value. For the years ended December 31, 2008, 2007 and 2006, we recorded expense
of $7.4 million, $6.1 million and $867,000, respectively, in connection with share-based payment awards. Based on share-based awards granted in 2008, 2007 and 2006, a future expense of
non-vested options of $17.4 million is expected to be recognized over a weighted-average period of 2.36 years.




Stock-Based Compensation



        On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-
Based
Payment, which requires us to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that
used the minimum value method under SFAS No. 123,
Accounting for Stock-Based Compensation, for either recognition or pro forma disclosures to
apply SFAS No. 123(R) using the prospective-transition method. As such, we continue to apply Accounting Principles Board (APB) Opinion No. 25,
Accounting for
Stock Issued to Employees
to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.



        Effective
with the adoption of SFAS No. 123(R), we elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In
accordance with SFAS No. 123(R), we recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.



        As
there was no public market for our common stock prior the effective date of the our IPO, we determined the volatility for options granted in 2008, 2007 and 2006 based on an analysis
of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical
volatility measures of this peer group of companies, as well as the historical volatility of our common stock beginning January 2007. The expected life of options has been determined utilizing the
"simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107,
Share-Based Payment. The risk-free interest



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rate
is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our common stock;
therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the
period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our historical policy under SFAS No. 123. As a result, we applied an
estimated forfeiture rate of 8.27%, 7.00%, and 11.25% for the years ended December 31, 2008, 2007 and 2006, respectively, in determining the expense recorded in the accompanying consolidated
statements of income. We recorded stock-based compensation expense of $7.4 million, $6.1 million and $867,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
As of December 31, 2008, there was $17.4 million of unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted-average
period of 2.36 years.



Stock-Based Compensation

        At December 31, 2008, the Company had three stock-based compensation plans, which are more fully described in Note 5.

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ACME PACKET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years Ended December 31, 2008, 2007 and 2006

(in thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

        On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires the Company to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123, Accounting for Stock-Based Compensation, for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, the Company continues to apply Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.

        Effective with the adoption of SFAS No. 123(R), the Company elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), the Company recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award. In addition, SFAS 123(R) requires the benefits of tax deductions in excess of recognized stock-based compensation to be reported as a financing activity rather than an operating activity in the statements of cash flows. This requirement reduces net operating cash flows and increases net financing cash flows in certain periods.

        As there was no public market for its common stock prior to October 13, 2006, the effective date of the Company's IPO, the Company determined the volatility for options granted in 2006 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies as well as the historical volatility of the Company's common stock beginning in January 2007. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was the Company's historical policy under SFAS No. 123. As a result, the Company applied an estimated forfeiture rates derived from an analysis of historical data of 8.27%, 7.00% and 11.25% for the years ended December 31, 2008, 2007 and 2006, respectively, in determining the expense recorded in the accompanying consolidated statements of income. The weighted-average fair values of options granted were $3.17, $7.62 and $5.43 for the years ended December 31, 2008, 2007 and 2006, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

 
  Years Ended December 31,  
 
  2008   2007   2006  

Risk-free interest rate

    3.05 %   4.56 %   4.79 %

Expected volatility

    46.56 %   56.28 %   81.44 %

Expected life

    4.76 years     5.41 years     6.25 years  

Dividend yield

             

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ACME PACKET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years Ended December 31, 2008, 2007 and 2006

(in thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

        During the year ended December 31, 2008, the Company issued 179,000 restricted stock units (RSUs) to certain of its employees at a fair value of $7.51 per share pursuant to the 2006 Equity Incentive Plan. The RSUs granted contain time-based vesting and performance-based vesting criteria. Of the time-based RSUs granted, 131,500 will vest in three equal installments, commencing on February 12, 2009 and becoming fully vested on February 12, 2011. The remaining 47,500 are performance-based RSUs and will vest only if certain Company growth rates are met by December 31, 2009, as determined by the Company's Board of Directors, the Board, and the recipient remains associated with the Company at the time such determination is made. The Company is accounting for the performance-based RSUs in accordance with SFAS No. 123(R), and has deferred all compensation cost until such time that it is probable that the performance criteria will be met.

        The Company recorded stock-based compensation expense of $7,398, $6,050 and $867 for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31 2008, there was $17,444 of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.36 years.

        See Note 5 for a summary of the stock option and restricted stock unit activity under the Company's stock-based compensation plans for the year ended December 31, 2008.

Stock-Based Compensation



        At December 31, 2008, the Company had three stock-based compensation plans, which are more fully described in Note 5.



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ACME PACKET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Years Ended December 31, 2008, 2007 and 2006



(in thousands, except share and per share data)



2. Summary of Significant Accounting Policies (Continued)



        On
January 1, 2006, the Company adopted the provisions of SFAS No. 123(R),
Share-Based Payment, which requires the Company
to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123,
Accounting for Stock-Based
Compensation
, for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the
prospective-transition method. As such, the Company continues to apply Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to
Employees,
to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.



        Effective
with the adoption of SFAS No. 123(R), the Company elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options
granted. In accordance with SFAS No. 123(R), the Company recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award. In
addition, SFAS 123(R) requires the benefits of tax deductions in excess of recognized stock-based compensation to be reported as a financing activity rather than an operating activity in the
statements of cash flows. This requirement reduces net operating cash flows and increases net financing cash flows in certain periods.



        As
there was no public market for its common stock prior to October 13, 2006, the effective date of the Company's IPO, the Company determined the volatility for options granted in
2006 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an
average of the historical volatility measures of this peer group of companies as well as the historical volatility of the Company's common stock beginning in January 2007. The expected life of options
has been determined utilizing
the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107,
Share-Based Payment. The risk-free interest
rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its common stock;
therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the
period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was the Company's historical policy under SFAS No. 123. As a result, the
Company applied an estimated forfeiture rates derived from an analysis of historical data of 8.27%, 7.00% and 11.25% for the years ended December 31, 2008, 2007 and 2006, respectively, in
determining the expense recorded in the accompanying consolidated statements of income. The weighted-average fair values of options granted were $3.17, $7.62 and $5.43 for the years ended
December 31, 2008, 2007 and 2006, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:























































































 
 Years Ended December 31,  
 
 2008  2007  2006  

Risk-free interest rate

  3.05% 4.56% 4.79%

Expected volatility

  46.56% 56.28% 81.44%

Expected life

  4.76 years  5.41 years  6.25 years 

Dividend yield

       



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ACME PACKET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Years Ended December 31, 2008, 2007 and 2006



(in thousands, except share and per share data)



2. Summary of Significant Accounting Policies (Continued)





        During the year ended December 31, 2008, the Company issued 179,000 restricted stock units (RSUs) to certain of its employees at a fair value of $7.51 per share pursuant to the
2006 Equity Incentive Plan. The RSUs granted contain time-based vesting and performance-based vesting criteria. Of the time-based RSUs granted, 131,500 will vest in three equal
installments, commencing on February 12, 2009 and becoming fully vested on February 12, 2011. The remaining 47,500 are performance-based RSUs and will vest only if certain Company growth
rates are met by December 31, 2009, as determined by the Company's Board of Directors, the Board, and the recipient remains associated with the Company at the time such determination is made.
The Company is accounting for the performance-based RSUs in accordance with SFAS No. 123(R), and has deferred all compensation cost until such time that it is probable that the performance
criteria will be met.



        The
Company recorded stock-based compensation expense of $7,398, $6,050 and $867 for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31 2008,
there was $17,444 of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.36 years.




        See
Note 5 for a summary of the stock option and restricted stock unit activity under the Company's stock-based compensation plans for the year ended December 31, 2008.



This excerpt taken from the APKT 10-Q filed Nov 10, 2008.

Stock-Based Compensation

 

        Cost of revenue and operating expenses include stock-based compensation expense.  Effective January 1, 2006, we adopted the requirements of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share Based Payment. SFAS No. 123(R) addresses all forms of stock-based awards, including shares issued under employee stock purchase plans, stock options, restricted stock, restricted stock units and stock appreciation rights. SFAS No. 123(R) requires us to expense stock-based payment awards with compensation cost for stock-based payment transactions measured at fair value.  For the three months ended September 30, 2008 and 2007, we recorded expense of $2.0 million and $1.7 million, respectively, and for the nine months ended September 30, 2008 and

 

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2007, we recorded expense of $5.3 million and $4.2 million, respectively.  Based on stock-based awards granted during the nine months ended September 30, 2008 and fiscal years 2007 and 2006, a future expense related to unvested awards of $19.7 million is expected to be recognized over a weighted-average period of 2.48 years.

 

This excerpt taken from the APKT 10-Q filed Aug 8, 2008.

Stock-Based Compensation

        On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires us to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123, Accounting for Stock-Based Compensation, for either recognition or pro forma disclosures to apply SFAS

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No. 123(R) using the prospective-transition method. As such, we will continue to apply APB Opinion No. 25, Accounting for Stock Issued to Employees, in future periods to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.

        Effective with the adoption of SFAS No. 123(R), we have elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), we will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

        We account for transactions in which services are received from nonemployees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured, in accordance with SFAS No. 123(R), and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services. There were no stock-based awards made to non-employees in the three and six months ended June 30, 2008 or 2007.

        As there was no public market for our common stock prior to October 13, 2006, the effective date of the our IPO, we determined the volatility for options granted in the three and six months ended June 30, 2008 and 2007 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies as well as the historical volatility of our common stock beginning in January 2007. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our historical policy under SFAS No. 123. As a result, we applied an estimated forfeiture rate of 7.74% for the three and six months ended June 30, 2008, and 7.00% for the three and six months ended June 30, 2007, in determining the expense recorded in the accompanying consolidated statement of operations. The weighted-average fair values of options granted were $4.08 and $7.72 for the three months ended June 30, 2008 and 2007, respectively and $3.37 and $10.21 for the six months ended June 30, 2008 and 2007, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

 
  Three Months Ended
June 30, 2008
  Three Months Ended
June 30, 2007
  Six Months Ended
June 30, 2008
  Six Months Ended
June 30, 2007
 

Risk-free interest rate

    3.15 %   4.60 %   3.15 %   4.74 %

Expected volatility

    44.72 %   64.82 %   44.23 %   67.97 %

Expected life

    4.75 years     6.25 years     4.75 years     6.25 years  

Dividend yield

                 

        We recorded stock-based compensation expense of $1.9 million and $1.5 million for the three months ended June 30, 2008 and 2007, respectively, and $3.3 million and $2.5 million for the six months ended June 30, 2008 and 2007, respectively. As of June 30, 2008, there was $20.6 million of unrecognized compensation expense related to unvested stock awards that is expected to be recognized over a weighted-average period of 2.53 years.

This excerpt taken from the APKT 10-Q filed May 9, 2008.

Stock-Based Compensation

        On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires us to recognize expense related to the fair value of stock-based compensation awards. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123 for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, we will continue to apply APB Opinion No. 25 in future periods to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method.

        Effective with the adoption of SFAS No. 123(R), we have elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), we will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

        We account for transactions in which services are received from nonemployees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured, in accordance with SFAS No. 123(R), and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in

23



Conjunction With Selling, Goods or Services. There were no stock-based awards made to non-employees in the three months ended March 31, 2008 or 2007.

        As there was no public market for our common stock prior to October 13, 2006, the effective date of the our IPO, we determined the volatility for options granted in the three months ended March 31, 2008 and 2007 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our historical policy under SFAS No. 123. As a result, we applied an estimated forfeiture rate of 7.74% and 11.25% for the three months ended March 31, 2008 and 2007, respectively, in determining the expense recorded in the accompanying consolidated statement of operations. The weighted-average fair values of options granted were $3.22 and $11.27 for the three months ended March 31, 2008 and 2007, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

 
  Three Months Ended
March 31, 2008

  Three Months Ended
March 31, 2007

 
Risk-free interest rate   3.15 % 4.80 %
Expected volatility   44.13 % 69.00 %
Expected life   4.75 years   6.25 years  
Dividend yield      

        We recorded stock-based compensation expense of $1.5 million and $944,000 for the three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008, there was $21.6 million of unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted-average period of 2.66 years.

These excerpts taken from the APKT 10-K filed Mar 13, 2008.

Stock-Based Compensation

        At December 31, 2007, the Company had three stock-based compensation plans, which are more fully described in Note 6.

        Through December 31, 2005, the Company accounted for its stock-based awards to employees using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic value method, compensation expense is measured on the date of grant as the difference between the deemed fair value of the Company's common stock and the stock option exercise price or restricted stock award purchase price multiplied by the number of stock options or restricted stock awards granted. Generally, the Company granted stock-based awards with exercise prices equal to the estimated fair value of its common stock; however, to the extent that the deemed fair value of the common stock exceeded the exercise or purchase price of stock-based awards granted to employees on the date of grant, the Company amortized the expense over the vesting schedule of the awards, generally four years. The fair value of the Company's common stock was determined by the Company's Board of Directors (the Board).

        Given the absence of a public market for the Company's common stock prior to the completion of the Company's initial public offering (IPO), the fair value for the Company's common stock was estimated by the Board, with input from management. The Board exercised judgment in determining the estimated fair value of the Company's common stock on the date of grant based on several factors, including the liquidation preferences, dividend rights and voting control attributable to the Company's then-outstanding convertible preferred stock and, primarily, the likelihood of achieving a liquidity event such as an initial public offering or sale of the Company. In the absence of a public trading market for

73


ACME PACKET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years Ended December 31, 2007, 2006 and 2005

(in thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)


the Company's common stock, the Board considered objective and subjective factors in determining the fair value of the Company's common stock. The Company believes this to have been a reasonable methodology based upon the Company's internal peer company analyses and based on several arm's-length transactions involving the Company's common stock supportive of the results produced by this valuation methodology.

        On December 16, 2004 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach under SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company adopted SFAS No. 123(R) starting on January 1, 2006.

        Effective with the adoption of SFAS No. 123(R), the Company has elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options granted. In accordance with SFAS No. 123(R), the Company recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.

        As there was no public market for its common stock prior to October 13, 2006, the effective date of the Company's IPO, the Company determined the volatility for options granted in 2006 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was the Company's historical policy under SFAS No. 123. As a result, the Company applied an estimated forfeiture rate of 7.00% and 11.25% for the years ended December 31, 2007 and 2006 respectively, in determining the expense recorded in the accompanying consolidated statement of operations. The weighted-average fair values of options granted were $7.62 and $5.43 for the years ended December 31, 2007 and 2006, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

 
  Year Ended
December 31, 2007

  Year Ended
December 31, 2006

 
Risk-free interest rate   4.56 % 4.79 %
Expected volatility   56.28 % 81.44 %
Expected life   5.41 years   6.25 years  
Dividend yield      

74


ACME PACKET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years Ended December 31, 2007, 2006 and 2005

(in thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

        The Company recorded stock-based compensation expense of $6,050 and $867 for the years ended December 31, 2007 and 2006, respectively. As of December 31 2007, there was $19,632 of unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted-average period of 2.55 years.

        The Company accounts for transactions in which services are received from nonemployees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured, in accordance with SFAS No. 123(R), and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services. There were no stock-based awards made to non-employees in the years ended December 31, 2007, 2006 or 2005.

        See Note 6 for a summary of the stock option activity under the Company's stock-based compensation plans for the years ended December 31, 2007, 2006 and 2005.

Stock-Based Compensation



        At December 31, 2007, the Company had three stock-based compensation plans, which are more fully described in Note 6.



        Through
December 31, 2005, the Company accounted for its stock-based awards to employees using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic value method, compensation expense is measured
on the date of grant as the difference between the deemed fair value of the Company's common stock and the stock option exercise price or restricted stock award purchase price multiplied by the number
of stock options or restricted stock awards granted. Generally, the Company granted stock-based awards with exercise prices equal to the estimated fair value of its common stock; however, to the
extent that the deemed fair value of the common stock exceeded the exercise or purchase price of stock-based awards granted to employees on the date of grant, the Company amortized the expense over
the vesting schedule of the awards, generally four years. The fair value of the Company's common stock was determined by the Company's Board of Directors (the Board).




        Given
the absence of a public market for the Company's common stock prior to the completion of the Company's initial public offering (IPO), the fair value for the Company's common stock
was estimated by the Board, with input from management. The Board exercised judgment in determining the estimated fair value of the Company's common stock on the date of grant based on several
factors, including the liquidation preferences, dividend rights and voting control attributable to the Company's then-outstanding convertible preferred stock and, primarily, the likelihood
of achieving a liquidity event such as an initial public offering or sale of the Company. In the absence of a public trading market for



73








ACME PACKET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Years Ended December 31, 2007, 2006 and 2005



(in thousands, except share and per share data)




2. Summary of Significant Accounting Policies (Continued)






the
Company's common stock, the Board considered objective and subjective factors in determining the fair value of the Company's common stock. The Company believes this to have been a reasonable
methodology based upon the Company's internal peer company analyses and based on several arm's-length transactions involving the Company's common stock supportive of the results produced by this
valuation methodology.



        On
December 16, 2004 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based Payment, which is a revision of SFAS
No. 123,
Accounting for Stock-Based
Compensation.
SFAS No. 123(R) supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of Cash
Flows
. Generally, the approach under SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
The Company adopted SFAS No. 123(R) starting on January 1, 2006.



        Effective
with the adoption of SFAS No. 123(R), the Company has elected to use the Black-Scholes option pricing model to determine the weighted average fair value of stock options
granted. In accordance with SFAS No. 123(R), the Company recognizes the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.



        As
there was no public market for its common stock prior to October 13, 2006, the effective date of the Company's IPO, the Company determined the volatility for options granted in
2006 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an
average of the historical volatility measures of this peer group of companies. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff
Accounting Bulletin No. 107,
Share-Based Payment. The risk-free interest rate is based on a treasury instrument whose term is
consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to
be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas, SFAS No. 123 permitted companies to
record forfeitures based on actual forfeitures, which was the Company's historical policy under SFAS No. 123. As a result, the Company applied an estimated forfeiture rate of 7.00% and 11.25%
for the years ended December 31, 2007 and 2006 respectively, in determining the expense recorded in the accompanying consolidated statement of operations. The weighted-average fair values of
options granted were $7.62 and $5.43 for the years ended December 31, 2007 and 2006, respectively. The weighted-average assumptions utilized to determine such values are presented in the
following table:













































 
 Year Ended

December 31, 2007

 Year Ended

December 31, 2006

 
Risk-free interest rate 4.56%4.79%
Expected volatility 56.28%81.44%
Expected life 5.41 years 6.25 years 
Dividend yield   



74








NAME="page_fo41301_1_75">










ACME PACKET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Years Ended December 31, 2007, 2006 and 2005



(in thousands, except share and per share data)



2. Summary of Significant Accounting Policies (Continued)



        The Company recorded stock-based compensation expense of $6,050 and $867 for the years ended December 31, 2007 and 2006, respectively. As of
December 31 2007, there was $19,632 of unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted-average period of
2.55 years.



        The
Company accounts for transactions in which services are received from nonemployees in exchange for equity instruments based on the fair value of such services received or of the
equity instruments issued, whichever is more reliably measured, in accordance with SFAS No. 123(R), and EITF Issue No. 96-18,
Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services
. There were no stock-based awards made to
non-employees in the years ended December 31, 2007, 2006 or 2005.



        See
Note 6 for a summary of the stock option activity under the Company's stock-based compensation plans for the years ended December 31, 2007, 2006 and 2005.




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