Ingram Micro 2007 Annual Report Download - page 59

and may also have the benefit of long-term capital gain treatment for any gain if the prescribed holding periods are
met. Some of these holding periods and employment requirements are liberalized in the event of a participant’s
death or disability while employed by us. We are generally not entitled to any tax deduction with respect to the grant
or exercise of incentive stock options.
If the participant does not hold the shares for the full term of the required holding periods, a portion of the gain
on the sale of such shares will be taxed to a participant as ordinary income and we will be entitled to a deduction in
the same amount, subject to certain conditions. The amount taxed as ordinary income will be the lesser of the
following: (1) the fair market value of the shares on the date of exercise minus the option price or (2) the amount
realized on disposition minus the exercise price. The balance of any gains will be taxed as short-term or long-term
capital gain, depending on the holding period.
In addition, the “spread” between the exercise price and the fair market value of the stock upon exercise of the
option is an adjustment in computing alternative minimum taxable income for the participant in the year that the
participant exercises the option.
Stock appreciation rights. Neither a participant nor we will incur any federal income tax consequences upon
the grant of a SAR. Normally, the holder of a SAR will recognize ordinary income on the date the SAR is exercised.
The amount of income the participant realizes on the exercise of the SAR is equal to the cash and/or the fair market
value of property received. At the time a SAR is exercised, we will be entitled to a deduction in an amount equal to
the ordinary income recognized by the participant and will also be required to withhold payroll taxes on this
amount. The maximum term of a SAR is 10 years.
Restricted stock awards and restricted stock units. Neither we nor a participant will incur any federal income
tax consequences upon the grant of restricted share awards and restricted share units until expiration of the restricted
period and the satisfaction of any other conditions applicable to the restricted share awards or restricted share units.
At that time, a participant generally will recognize taxable income equal to the aggregate amount of cash received
and the then fair market value of the shares and, subject to certain conditions, we will be entitled to a corresponding
deduction. However, a participant may elect under Section 83(b) of the Code, within 30 days after the date of the
grant of restricted shares, to recognize ordinary income as of the date of grant and we will be entitled to a
corresponding deduction at that time.
We will be entitled to a deduction for the compensation element inherent in a restricted stock award at the time
the participant includes the amounts as ordinary income — either upon the lapse of the restriction or at the time of
any election by the participant under Section 83(b) of the Code.
Performance awards. Neither a participant nor we will incur any federal income tax consequences upon the
grant of performance awards. Participants generally will recognize taxable income at the time when payment for the
performance awards is received in an amount equal to the aggregate amount of cash and the fair market value of
shares acquired. We will generally be entitled to an income tax deduction equal to the amount included as
compensation in the gross income of the participant at the time that income is required to be recognized by the
participant, subject to certain conditions.
Tax Deductions and Section 162(m) of the Code. We generally should be entitled to a federal income tax
deduction at the same time and for the same amount as the recipient recognizes ordinary income, subject to the
limitations of Section 162(m) of the Code with respect to compensation paid to certain “covered employees.” Under
Section 162(m), income tax deductions of publicly-held corporations may be limited to the extent total compen-
sation (generally including base salary, annual bonus and non-qualified benefits paid) for certain executive officers
exceeds $1 million in any one year. The Section 162(m) deduction limit, however, does not apply to certain
“qualified performance-based compensation” as provided for by the Code and established by an independent
compensation committee. In particular, stock options and stock appreciation rights will satisfy the “qualified
performance-based compensation” exception if the awards are made by a qualifying compensation committee, the
underlying plan sets the maximum number of shares that can be granted to any person within a specified period and
the compensation is based solely on an increase in the stock price after the grant date (i.e., the exercise price or base
price is greater than or equal to the fair market value of the stock subject to the award on the grant date). Other
awards granted under the Amended 2003 Plan may constitute “qualified performance-based compensation” for
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