EMC 2003 Annual Report Download - page 43

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Post-retirement benefit cost for the domestic post-retirement benefits plan assumed as part of our acquisition of Data General Corporation ("Data
General") is generally funded on a pay-as-you-go basis to the extent that current cost is deductible for U.S. Federal tax purposes.
62
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock-Based Compensation
FAS No. 123, "Accounting for Stock-Based Compensation" defined a fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. As provided for in FAS No. 123, we elected to apply Accounting Principles Board ("APB") Opinion No. 25 and related
interpretations in accounting for our stock-based compensation plans. The following is a reconciliation of net income (loss) per weighted average share had
we adopted FAS No. 123 (table in thousands, except per share amounts):
2003 2002 2001
Net income (loss) $ 496,108 $ (118,706) $ (507,712)
Add back: Stock compensation costs, net of tax, on stock-based awards granted below fair market value 9,288 8,434 12,001
Less: Stock compensation costs, net of tax, had stock compensation expense been measured at fair value (382,307) (364,849) (347,704)
Incremental stock option expense per FAS No. 123, net of tax (373,019) (356,415) (335,703)
Adjusted net income (loss) $ 123,089 $ (475,121) $ (843,415)
Weighted average shares, basic–as reported 2,211,544 2,206,294 2,211,273
Weighted average shares, diluted–as reported 2,237,656 2,206,294 2,211,273
Net income (loss) per weighted average share, basic–as reported $ 0.22 $ (0.05) $ (0.23)
Net income (loss) per weighted average share, diluted–as reported $ 0.22 $ (0.05) $ (0.23)
Adjusted net income (loss) per weighted average share, basic $ 0.06 $ (0.22) $ (0.38)
Adjusted net income (loss) per weighted average share, diluted $ 0.06 $ (0.22) $ (0.38)
The fair value of each option granted during 2003, 2002 and 2001 is estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
2003 2002 2001
Dividend yield None None None
Expected volatility 55.0% 55.0% 55.0%
Risk-free interest rate 3.27% 3.44% 4.36%
Expected life (years) 5.0 5.0 5.0
63
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted average fair value of stock-based awards granted at fair market value during:
2003 $ 6.44
2002 $ 3.69
2001 $ 11.91
Weighted average fair value of stock-based awards granted below fair market value during:
2003 $ 7.13
2002 N/A
2001 $ 31.43
Concentrations of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of temporary cash investments, short and long-term
investments and accounts and notes receivable. We place our temporary cash investments and short and long-term investments primarily in investment grade
instruments and limit the amount of investment with any one issuer. The credit risk associated with accounts and notes receivables is limited due to the large
number of customers and their broad dispersion over many different industries and geographic areas.
New Accounting Pronouncements