Harman Kardon 2007 Annual Report Download - page 71

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58
to the payment of the award. The performance period will not be less than three years. No stock
appreciation right or performance unit grants have been made under the 2002 Plan.
We also have options outstanding under our 1992 Plan. Shares under the 1992 Plan can be issued as
original issuances or treasury shares or a combination of both. Options to purchase 1,275,888 shares with
expiration dates ranging from November 10, 2007 to November 8, 2012 are outstanding under our 1992
Plan. The 1992 Plan was approved by our stockholders and had no shares available for grant on June 30,
2007.
Adoption of SFAS No. 123R
Effective July 1, 2005, we adopted SFAS No. 123R using the modified prospective method. Under SFAS
No. 123R, our compensation expense is recognized based on the estimated fair value of stock options and
similar equity instruments awarded to employees. The effect of adopting SFAS No. 123R was not
material to our income from continuing operations and net income for the year ended June 30, 2006, and
the cumulative effect of adoption using the modified-prospective method was similarly not material. Prior
to fiscal 2006, we recorded compensation expense associated with stock options in accordance with SFAS
No. 123 since July 1, 2002. The primary impact of SFAS No. 123R was on our disclosures and certain
calculations as we now are required to use estimated forfeitures rather than actual forfeitures as we had
prior to the adoption of SFAS No. 123R.
Prior to the adoption of SFAS No. 123R, we presented all tax benefits of deductions resulting from the
exercise of stock options as operating cash flows in the consolidated statements of cash flows. SFAS No.
123R requires the cash flows related to tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) to be classified as financing cash
flows. Accordingly, we have classified $10.5 million and $45.5 million excess tax benefit realized in the
years ended June 30, 2007 and 2006, respectively, as cash flow from financing activity in the
accompanying consolidated statements of cash flows.
FASB issued FSP No. FAS 123R-3, Transition Election Related to Accounting for Tax Effects of Share-
Based Payment Awards, on November 10, 2005. We elected to adopt the alternative transition method
provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant
to SFAS No. 123R. The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of
employee stock-based compensation, and to determine the subsequent impact on the APIC pool and
consolidated statements of cash flows of the tax effects of employee stock-based compensation awards
that are outstanding upon adoption of SFAS No. 123R.