This excerpt taken from the NTCT 8-K filed Jan 14, 2008.
Prior to February 1, 2006, the Company accounted for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and followed the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation (FAS 123). Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of a companys common stock and the exercise price of the option. Employee stock-based compensation determined under APB 25 is recognized using the multiple option method prescribed by the Financial Accounting Standards Board (FASB) Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, over the option vesting period.
Effective February 1, 2006, the Company adopted the fair value provisions of SFAS No. 123(R), Share-Based Payment (FAS 123R), which supersedes its previous accounting under APB 25. FAS 123R requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. FAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company adopted FAS 123R using the prospective transition method, which requires that for nonpublic entities that used the minimum value method for either pro forma or financial statement recognition purposes, FAS 123R shall be applied to option grants after the required effective date. For options granted prior to the FAS 123R effective date for which the requisite service period had not been performed as of February 1, 2006, the Company will continue to recognize compensation expense on the remaining unvested awards under the intrinsic-value method of APB 25. In addition, the Company will continue amortizing those awards valued prior to February 1, 2006 utilizing an accelerated amortization schedule while all option grants valued after February 1, 2006 will be expensed on a straight-line basis.
Network General Central Corporation
Notes to Consolidated Financial Statements
October 31, 2007 and 2006 and January 31, 2007 and 2006
Upon adoption of FAS 123R, the Company continued its use of the Black-Scholes method of valuation of share-based awards granted beginning in fiscal 2007, which was previously used for the Companys pro forma information required under FAS 123. On November 10, 2005, the FASB issued FASB Staff Position No. SFAS 123R-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards (FSP 123R-3). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effect of employee share-based compensation, and to determine the subsequent impact on the APIC pool and the Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards that are outstanding upon the adoption of FAS 123R. The Company has adopted the provisions of FSP 123R-3 and elected to use the short-cut method to calculate its historical pool of windfall tax benefits. As the Company adopted FAS 123(R) under the prospective transition method and has not recorded any tax deductions related to stock options since the adoption of FAS 123(R), the impact of adopting FSP 123R-3 is not material for the year ended January 31, 2007 and the nine months ended October 31, 2007.
This excerpt taken from the NTCT 10-Q filed Aug 9, 2006.
Effective April 1, 2006, NetScout adopted the fair value recognition provisions of SFAS 123R, using the modified prospective application transition method, and therefore have not restated prior periods results. Under this method we recognize compensation expense for all share-based payments granted after April 1, 2006 and those shares granted in prior periods but not yet vested as of April 1, 2006, in accordance with SFAS 123R. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award. Prior to SFAS 123Rs adoption, we accounted for share-based payments under APB Opinion No. 25, Accounting for Stock Issued to Employees and accordingly, generally recognized compensation expense only when we granted options with a discounted exercise price or granted restricted stock unit.
Based on historical experience the Company has assumed an annualized forfeiture rate of 0% for awards granted to its two most senior executives and directors, and a 12% forfeiture rate for its remaining employees. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures are higher than estimated. The cumulative effect of the accounting change resulted in pre-tax income of $111,000 and was recognized in the statement of operations for the three-month period ending June 30, 2006.
Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment
awards and stock price volatility. Management estimated the volatility based on historical volatility of its own stock. The assumptions used in calculating the fair value of share-based payment awards represent managements best estimates, but these estimates involve inherent uncertainties and the application of managements judgment. As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. See Note 2 to the Consolidated Condensed Financial Statements for a further discussion on stock-based compensation.
This excerpt taken from the NTCT 8-K filed Jun 30, 2005.
The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and has adopted SFAS No. 123, Accounting for Stock-Based Compensation, as amended, through disclosure only. The Company accounts for equity instruments issued to non-employees using the fair value method in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 and the Emerging Issues Task Force (EITF) in 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.
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2004 and 2003 and for the period from March 3, 2000 (date of inception) to December 31, 2004, there was no compensation expense recorded in accordance with APB Opinion No. 25 since the option price of options issued since inception was equal to the intrinsic value of the common stock; however, SFAS No. 123 requires the Company to make pro forma disclosures of what the net loss would have been had the minimum value based method defined in SFAS No. 123 been applied to employee and director stock options. For all years since inception, the fair value for these options was estimated using the Black-Scholes option pricing model. The following weighted-average assumptions were utilized for the years ended December 31, 2004 and 2003:
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. Had compensation cost been determined based on the fair value of awards granted during the years ended December 31, 2004 and 2003, and cumulative from March 3, 2000 (date of inception) through December 31, 2004 consistent with the provisions of SFAS No. 123, the Companys net loss would have been as follows:
Because the options vest over a period of time and additional option grants are expected to be made in future years, the above actual results may not be representative of the actual results for future years.