Ingram Micro 2006 Annual Report Download - page 84

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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.
Compensation expense of $28,875 for the year ended December 30, 2006 was recognized in accordance with
FAS 123R and the related deferred tax asset established was $6,829. In accordance with FAS 123R, beginning in
2006, the Company has presented excess tax benefits from the exercise of stock-based compensation awards both as
an operating activity and as a financing activity in its consolidated statement of cash flows.
Prior to the adoption of FAS 123R, the Company measured compensation expense for its employee stock-
based compensation plans using the intrinsic value method prescribed by APB 25. Under APB 25, when the
exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the
date of the grant, no compensation expense was recognized. The Company applied the disclosure only provisions of
FAS 123 as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure,” as if the fair-value-based method had been applied in measuring
compensation expense. The following table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation for
the year ended December 31, 2005 and January 1, 2005:
2005 2004
Fiscal Year
Net income, as reported........................................ $216,906 $219,901
Compensation expense as determined under FAS 123, net of related tax
effects ................................................... 17,068 26,479
Pro forma net income ......................................... $199,838 $193,422
Earnings per share:
Basic — as reported ......................................... $ 1.35 $ 1.41
Basic — pro forma ......................................... $ 1.25 $ 1.24
Diluted — as reported ....................................... $ 1.32 $ 1.38
Diluted — pro forma ........................................ $ 1.21 $ 1.21
The Company has elected to use the Black-Scholes option-pricing model to determine the fair value of stock
options. The Black-Scholes model incorporates various assumptions including volatility, expected life, and interest
rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most
recent period commensurate with the estimated expected life of the Company’s stock options. The expected life of
an award is based on historical experience and the terms and conditions of the stock awards granted to employees.
The fair value of options granted in the year ended December 30, 2006, December 31, 2005 and January 1, 2005 was
estimated using the Black-Scholes option-pricing model assuming no dividends and using the following weighted
average assumptions:
2006 2005 2004
Fiscal Year
Expected life of stock options .......................... 4.0years 3.5 years 3.0 years
Risk-free interest rate ................................ 4.70% 3.71% 2.72%
Expected stock volatility .............................. 40.0% 41.8% 41.8%
Weighted-average fair value of options granted ............. $7.14 $6.04 $4.80
60
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)