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In December 2004, the FASB issued Staff Position No. 109-2 (""FSP 109-2''), Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act
of 2004, which provides guidance for implementing the repatriation of earnings provisions of the American
Jobs Creation Act of 2004 (the ""Jobs Act'') and the impact on the Company's income tax expense and
deferred income tax liabilities. The Jobs Act was enacted in October 2004. However, FSP 109-2 allows
additional time beyond the period of enactment to allow the Company to evaluate the effect of the Jobs Act on
the Company's plan for reinvestment or repatriation of foreign earnings. The Company is currently evaluating
the impact of the repatriation provisions of FSP 109-2 and expects to complete this evaluation before the end
of fiscal 2006. The Company is performing its evaluation in stages and, at this point, is considering a range
between zero and $100 million for potential repatriation. However, the related range of income tax effects
from such repatriation cannot be reasonably estimated at this time.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4 (""SFAS 151''). SFAS 151 requires that abnormal inventory costs such as abnormal freight,
handling costs and spoilage be expensed as incurred rather than capitalized as part of inventory, and requires
the allocation of fixed production overhead costs to be based on normal capacity. SFAS 151 is to be applied
prospectively and is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
The adoption of SFAS 151 will not have a material impact on the Company's consolidated financial
statements.
In September 2004, the Emerging Issues Task Force (""EITF'') of the FASB reached a final consensus
on EITF Issue No. 04-08 (""EITF 04-08''), The Effect of Contingently Convertible Instruments on Diluted
Earnings Per Share. EITF 04-08 requires instruments with conversion features that are contingent upon an
issuer's stock price to be included in the earnings per share calculation using the ""if-converted'' method
regardless of whether the contingency is met. However, EITF 04-08 allows for treasury stock method
treatment for any convertible instruments that have provisions requiring cash-settlement up to the par value.
EITF 04-08 is effective for interim and annual periods ending after December 15, 2004. In December 2004,
the Company made an irrevocable election to satisfy the principal portion of its 2.0% Convertible Senior
Debentures (see Liquidity and Capital Resources Ì Financing Transactions), if converted, in cash. There-
fore, the Company has applied the treasury stock method for the Debentures both prospectively and
retroactively for all periods presented. The adoption of EITF 04-08 had no impact on the Company's
consolidated financial statements or earnings per share as the Debentures were antidilutive both retrospec-
tively and for the year ended July 2, 2005. In addition, EITF 04-08 does not require retrospective application
for the 4.5% Convertible Notes, which matured on September 1, 2004, because the Company settled these
Notes in cash upon maturity.
Liquidity and Capital Resources
Cash Flows
The following table summarizes the Company's cash flow activities for fiscal 2005, 2004 and 2003,
including the Company's computation of free cash flow and a reconciliation of this metric to the nearest
GAAP measures of net income and net cash flow from operations. Management's computation of free cash
flow consists of net cash flow from operations plus cash flows generated from or used for purchases and sales
of property, plant and equipment, acquisitions of operations, effects of exchange rates on cash and cash
equivalents and other financing activities. Management believes that the non-GAAP metric of free cash flow
is a useful measure to help management and investors better assess and understand the Company's operating
performance and sources and uses of cash. Management also believes the analysis of free cash flow assists in
identifying underlying trends in the business. Computations of free cash flow may differ from company to
company. Therefore, the analysis of free cash flow should be used as a complement to, and in conjunction
with, the Company's consolidated statements of cash flows presented in the accompanying financial
statements appearing in Item 15 of this Report.
Management also analyzes cash flow from operations based upon its three primary components noted in
the table below: net income, non-cash and other reconciling items and cash flow generated from or used for
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