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clarify the accounting for abnormal amounts of idle
New Accounting Standards facility expenses, freight, handling costs and wasted
In December 2004, the Financial Accounting Standards material (spoilage) costs. SFAS No. 151 requires those
Board (FASB) issued SFAS No. 123(R). Among other items to be excluded from the cost of inventory and
items, SFAS No. 123(R) will require us to recognize expensed when incurred. It also requires the allocation of
compensation expense for all stock-based compensation fixed production overheads to the costs of conversion be
in our consolidated statements of earnings. In addition, based on the normal capacity of the production facilities.
SFAS No. 123(R) will require the benefits of tax SFAS No. 151 is effective for fiscal years beginning after
deductions in excess of recognized compensation cost to June 15, 2005. We are currently evaluating the impact of
be reported as a financing cash flow, rather than as an adopting SFAS No. 151, but we do not expect it to have
operating cash flow. The new requirement will reduce a significant impact on our consolidated results of
net operating cash flows and increase net financing cash operations or financial position.
flows in periods after adoption. While we are unable to FASB Staff Position (FSP) No. 109-2, Accounting and
estimate what those amounts will be in the future (because Disclosure Guidance for the Foreign Earnings Repatriation
they depend on, among other things, when employees Provision with the American Jobs Creation Act of 2004,
exercise stock options), the amount of operating cash was issued in December 2004. This FSP provides
flows recognized in prior periods for such excess tax guidance on accounting for special reductions in taxes
deductions were $60 million, $41 million and $33 million included in the American Jobs Creation Act of 2004
in fiscal 2005, 2004 and 2003, respectively. (Act). In particular, the Act allows a one-time decrease in
SFAS No. 123(R) is effective for fiscal years beginning U.S. federal income taxes on repatriated foreign earnings.
after June 15, 2005, with early adoption permitted. We FSP No. 109-2 clarifies that a company’s consideration of
expect to implement the new standard beginning with the the Act does not overrule its prior contention that the
first quarter of fiscal 2006 using the ‘‘modified foreign earnings were permanently reinvested. Also, FSP
retrospective’’ approach which permits us to restate our No. 109-2 indicates that companies should recognize tax
previously reported consolidated financial statements to expense when a decision is made to repatriate some or
reflect previously disclosed pro forma compensation all foreign earnings, and provide disclosure about the
expense in our consolidated financial statements. We possible range of repatriation if the analysis is not yet
estimate the impact of adopting SFAS No. 123(R) to be complete. We have reviewed the provisions of the Act and
approximately $0.17 per diluted share for fiscal 2006, do not expect to repatriate additional income earned
compared with $0.14 per diluted share for fiscal 2005. outside the U.S. during fiscal 2006; therefore, we have
Fiscal 2005 pro forma compensation expense benefited not recorded any income tax expense as a result of the
from an increase in the expected participant stock option Act’s provisions. For additional discussion of the Act refer
forfeiture rate. Depending on the model used to calculate to Note 9, Income Taxes, of the Notes to Consolidated
stock-based compensation expense in the future, model Financial Statements, included in Item 8, Financial
assumptions, participant forfeitures and other Statements and Supplementary Data, of this Annual
requirements of SFAS No. 123(R), the pro forma Report on Form 10-K.
disclosure may not be indicative of the stock-based
compensation expense that will be recognized in our Quarterly Results and Seasonality
future financial statements. For additional discussion on Similar to many retailers, our business is seasonal.
our adoption of SFAS No. 123(R), refer to Note 1, Historically, we have realized more of our revenue and
Summary of Significant Accounting Policies, of the Notes earnings in the fiscal fourth quarter, which includes the
to Consolidated Financial Statements, included in Item 8, majority of the holiday selling season, than in any other
Financial Statements and Supplementary Data, of this fiscal quarter. The timing of new-store openings, costs
Annual Report on Form 10-K. associated with the development of new businesses, as
In November 2004, the FASB issued SFAS No. 151, well as general economic conditions may also affect our
Inventory Costs. SFAS No. 151 amends the guidance in future quarterly results.
Accounting Research Bulletin No. 43, Inventory Pricing, to
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