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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 $10,475,000 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 $6,170,000 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 $16,645,000 pre-tax (included in selling, general and administrative expenses), $10,554,000 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.
2. Acquisitions, divestitures and investments
On July 5, 2005, the Company acquired Memec Group Holdings Limited (""Memec''), a global
distributor that marketed and sold a portfolio of semiconductor devices from industry-leading suppliers in
addition to providing customers with engineering expertise and design services. Memec, with sales of
$2.28 billion (unaudited, see Unaudited Pro forma results in this Note 2) for the twelve months ended July 4,
2005, has been fully integrated into the Electronics Marketing group (""EM'') of Avnet as of the end of fiscal
2006.
Purchase price
The consideration for the Memec acquisition consisted of stock and cash valued at approximately
$506,882,000, including transaction costs, plus the assumption of $239,960,000 of Memec's net debt (debt less
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