Banana Republic 2006 Annual Report Download - page 62

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expense is recognized in the Consolidated Statements of Income. Service awards and discounted stock options,
which are granted at less than fair market value, are amortized to operating expenses over the vesting period of
the stock award. We amortized deferred compensation for each vesting layer of a stock award using the straight-
line method.
The following table shows the effect on net earnings and earnings per share had share-based compensation
been recognized prior to the adoption of SFAS 123(R) based upon the estimated fair value recognition provisions
of SFAS 123 on the grant date of stock options, and employee stock purchase rights during fiscal 2005 and fiscal
2004.
($ in millions, except per share data)
52 Weeks Ended
January 28, 2006
52 Weeks Ended
January 29, 2005
Net earnings, as reported ........................................... $1,113 $1,150
Add: Share-based compensation expense included in reported net earnings, net
of related tax effects ............................................. 13 3
Deduct: Total share-based compensation expense determined under fair-value
based method for all awards, net of related tax effects .................. (93) (80)
Pro forma net earnings ......................................... $1,033 $1,073
Earnings per share:
As reported-basic ............................................. $ 1.26 $ 1.29
Pro forma-basic .............................................. 1.17 1.20
As reported-diluted ............................................ 1.24 1.21
Pro forma-diluted ............................................. 1.15 1.13
See Note 8 of Notes to the Consolidated Financial Statements for the assumptions used to value option grants.
Recent Accounting Pronouncements
In June 2006, the FASB ratified the consensuses reached by the Emerging Issues Task Force (“EITF”) in
Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement (That is, Gross Versus Net Presentation).” Issue No. 06-3 requires disclosure
of an entity’s accounting policy regarding the presentation of taxes assessed by a governmental authority that are
directly imposed on a revenue-producing transaction between a seller and a customer including sales, use, value
added and some excise taxes. We present such taxes on a net basis (excluded from net sales). We do not expect
the adoption of Issue No. 06-3, which is effective for interim and annual reporting periods beginning after
December 15, 2006, to have a material effect on our financial position, cash flows or results of operations.
In July 2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in tax
positions. FIN 48 is effective for fiscal 2007, with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings in the first quarter of 2007. Upon adoption, we estimate
that the adjustment to retained earnings will not be material. This estimate is subject to revision as we complete
our analysis.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value measurements and, accordingly,
does not require any new fair value measurements. SFAS 157 is effective for fiscal 2008. We are currently in the
process of assessing the impact the adoption of SFAS 157 will have on our financial position, cash flows or
results of operations.
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