Ingram Micro 2006 Annual Report Download - page 69

average number of common shares outstanding during the reported period. Diluted EPS uses the treasury stock
method or the if-converted method, where applicable, to compute the potential dilution that would occur if stock
awards and other commitments to issue common stock were exercised.
The computation of Basic EPS and Diluted EPS is as follows:
2006 2005 2004
Fiscal Year
Net income .............................. $ 265,766 $ 216,906 $ 219,901
Weighted average shares .................... 165,414,176 160,262,465 155,451,251
Basic earnings per share .................... $ 1.61 $ 1.35 $ 1.41
Weighted average shares including the dilutive
effect of stock awards (5,461,618; 4,068,701;
and 4,228,789 for 2006, 2005, and 2004,
respectively) ........................... 170,875,794 164,331,166 159,680,040
Diluted earnings per share ................... $ 1.56 $ 1.32 $ 1.38
There were approximately 1,606,000, 6,983,000, and 12,813,000 outstanding stock awards in 2006, 2005, and
2004, respectively, which were not included in the computation of Diluted EPS because the exercise price was
greater than the average market price of the Class A Common Stock, thereby resulting in an antidilutive effect.
Accounting for Stock-Based Compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”). FAS 123R
addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the
enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In March 2005, the
SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of FAS 123R and the
valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its
adoption of FAS 123R.
FAS 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value
method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), and instead generally requires that such transactions be accounted for using a fair-value-based
method and expensed in the consolidated statement of income. The Company uses the Black-Scholes option-pricing
model to determine the fair value of stock options under FAS 123R, consistent with the method previously used for
its pro forma disclosures under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-
Based Compensation” (“FAS 123”). The Company has elected the modified prospective transition method as
permitted by FAS 123R; accordingly, prior periods have not been restated to reflect the impact of FAS 123R. The
modified prospective transition method requires that stock-based compensation expense be recorded for all new and
unvested stock options, restricted stock and restricted stock units that are ultimately expected to vest as the requisite
service is rendered beginning on January 1, 2006, the first day of the Company’s fiscal year 2006 (see Note 12 to the
Company’s consolidated financial statements). Stock-based compensation expense for awards granted prior to
January 1, 2006 is based on the grant date fair value as previously determined under the disclosure-only provisions
of FAS 123. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a straight-
line basis over the requisite service period of the award, which is the vesting term of outstanding stock awards. The
Company estimated the forfeiture rate for the year ended December 30, 2006 based on its historical experience
during the preceding five fiscal years.
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)