Avnet 2006 Annual Report Download - page 37

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own adoption transition provisions and is therefore not in the scope of SFAS 154. As a result, Avnet does not
believe the adoption of SFAS 154 will have a material impact on the Company's consolidated financial
statements.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligation,(""FIN 47''), which is an interpretation of SFAS No. 143, Accounting for Asset Retirement
Obligation. FIN 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about
the timing or method of settlement. The adoption of FIN 47 in fiscal 2006 did not have a material impact on
the Company's consolidated financial statements.
Effective in the first quarter of fiscal 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payments (""SFAS 123R''), which revises SFAS No. 123,
Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS 123R requires all share-based payments to employees, including grants of employee
stock options, be measured at fair value and expensed in the consolidated statement of operations over the
service period (generally the vesting period). Upon adoption, the Company transitioned to SFAS 123R using
the modified prospective application, whereby compensation cost is only recognized in the consolidated
statements of operations beginning with the first period that SFAS 123R is effective and thereafter, with prior
periods' stock-based compensation for option and employee stock purchase plan activity still presented on a
pro forma basis. The Company continues to use the Black-Scholes option valuation model to value stock
options. As a result of the adoption of SFAS 123R, the Company recognized pre-tax charges of $10.5 million
in fiscal 2006 associated with the expensing of stock options and employee stock purchase plan activity.
Additionally, the Company increased its grant activity under other stock-based compensation programs (while
decreasing the number of options granted) that have always been expensed in the Company's consolidated
statements of operations, which yielded incremental expense under these other programs amounting to
$6.1 million when compared with fiscal 2005. In fiscal 2006, the combination of these two changes resulting
from the adoption of SFAS 123R resulted in incremental expenses of $16.6 million pre-tax (included in
selling, general and administrative expenses), $10.6 million after tax and $0.07 per share on a diluted basis.
In November 2005, the FASB issued Staff Position No. 123R-3 (""FSP 123R-3''), Transition Election
Relating to Accounting for the Tax Effects of Share-Based Payment Awards, which provides an optional
alternative transition election for calculating the pool of excess tax benefits (""APIC pool'') available to absorb
tax deficiencies recognized under SFAS 123R. Under FSP 123R-3, an entity can make a one time election to
either use the alternative simplified method or use the guidance in SFAS 123R to calculate the APIC pool.
The Company has elected to use the alternative simplified method under FSP 123R-3.
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''), which was enacted in October 2004, and the impact on the
Company's income tax expense and deferred income tax liabilities. 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 has completed its
evaluation of the impact of the repatriation provisions of FSP 109-2 and has elected not to repatriate any
foreign earnings under the Jobs Act. As a result, the adoption of FSP 109-2 did not have a material impact on
the Company's consolidated financial statements.
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 did not have a material impact on the Company's consolidated financial statements.
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