AEO » Topics » Recent Accounting Pronouncements

These excerpts taken from the AEO 10-K filed Mar 30, 2009.
Recent Accounting Pronouncements
 
Recent accounting pronouncements are disclosed in Note 2 of the Consolidated Financial Statements.


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Recent
Accounting Pronouncements



 



Recent accounting pronouncements are disclosed in Note 2 of
the Consolidated Financial Statements.





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Recent Accounting Pronouncements
 
In February 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP No. FAS 157-2”) which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually). For items within its scope, FSP No. FAS 157-2 defers the effective date to fiscal years beginning after November 15, 2008. The Company will adopt SFAS No. 157-2 for its financial assets and financial liabilities beginning in the first quarter of Fiscal 2009. The adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities will not have a material impact on the Company’s Consolidated Financial Statements.
 
In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF No. 03-6-1”). FSP EITF No. 03-6-1 addresses whether awards granted in unvested share-based payment transactions that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and therefore need to be included in computing earnings per share under the two-class method, as described in SFAS No. 128, Earnings Per Share (“SFAS No. 128”). This FSP will be effective for the Company beginning in the first quarter of Fiscal 2009 and will be applied retrospectively in accordance with the FSP. The adoption of FSP EITF No. 03-6-1 will not have a material impact on the Company’s Consolidated Financial Statements.
 
In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset in a Market That is Not Active (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS No. 157, when the market for a financial asset is not active, specifically regarding consideration of management’s internal assumptions in measuring fair value when observable data are not present, how observable market information from an inactive market should be taken into account, and the use of broker quotes or pricing services in assessing the relevance of observable and unobservable data. This FSP was effective immediately. The Company initially considered the guidance provided by FSP FAS 157-3 in its determination of estimated fair values of its investment portfolio as of November 1, 2008. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding the fair value measurement of our investment portfolio.
 
Recent
Accounting Pronouncements



 



In February 2008, the FASB issued Staff Position
(“FSP”)
No. FAS 157-2,
Effective Date of FASB Statement No. 157 (“FSP
No. FAS 157-2”)
which delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value on a
recurring basis (at least annually). For items within its scope,
FSP
No. FAS 157-2
defers the effective date to fiscal years beginning after
November 15, 2008. The Company will adopt
SFAS No. 157-2
for its financial assets and financial liabilities beginning in
the first quarter of Fiscal 2009. The adoption of
SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities will not have a material impact on the
Company’s Consolidated Financial Statements.


 



In June 2008, the FASB issued FSP Emerging Issues Task Force
(“EITF”)
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(“FSP
EITF
No. 03-6-1”).
FSP EITF
No. 03-6-1
addresses whether awards granted in unvested share-based payment
transactions that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating
securities and therefore need to be included in computing
earnings per share under the two-class method, as described in
SFAS No. 128, Earnings Per Share
(“SFAS No. 128”). This FSP will be
effective for the Company beginning in the first quarter of
Fiscal 2009 and will be applied retrospectively in accordance
with the FSP. The adoption of FSP EITF
No. 03-6-1
will not have a material impact on the Company’s
Consolidated Financial Statements.


 



In October 2008, the FASB issued FSP
FAS 157-3,
Determining the Fair Value of a Financial Asset in a Market
That is Not Active
(“FSP
FAS 157-3”).
FSP
FAS 157-3
clarifies the application of SFAS No. 157, when the
market for a financial asset is not active, specifically
regarding consideration of management’s internal
assumptions in measuring fair value when observable data are not
present, how observable market information from an inactive
market should be taken into account, and the use of broker
quotes or pricing services in assessing the relevance of
observable and unobservable data. This FSP was effective
immediately. The Company initially considered the guidance
provided by FSP
FAS 157-3
in its determination of estimated fair values of its investment
portfolio as of November 1, 2008. Refer to Note 4 to
the Consolidated Financial Statements for additional information
regarding the fair value measurement of our investment portfolio.


 




These excerpts taken from the AEO 10-K filed Apr 2, 2008.
Recent Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-2 Effective Date of FASB Statement No. 157 (“FSP No. FAS 157-2”) which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually). For items within its scope, FSP No. FAS 157-2 defers the effective date to fiscal years beginning after November 15, 2008. The Company will adopt SFAS No. 157 for its financial assets and financial liabilities beginning in the first quarter of Fiscal 2008. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its future Consolidated Financial Statements.
 
Recent
Accounting Pronouncements



 



In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS No. 157”). SFAS No. 157
addresses how companies should measure fair value when they are
required to use fair value as a measure for recognition or
disclosure purposes under generally accepted accounting
principles. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. In February 2008, the
FASB issued Staff Position (“FSP”)
No. FAS 157-2
Effective Date of FASB Statement No. 157 (“FSP
No. FAS 157-2”)
which delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value on a
recurring basis (at least annually). For items within its scope,
FSP
No. FAS 157-2
defers the effective date to fiscal years beginning after
November 15, 2008. The Company will adopt
SFAS No. 157 for its financial assets and financial
liabilities beginning in the first quarter of Fiscal 2008. The
Company does not expect the adoption of SFAS No. 157
to have a material impact on its future Consolidated Financial
Statements.


 




This excerpt taken from the AEO 10-Q filed Dec 6, 2007.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement also establishes presentation and disclosure requirements

 

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to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and the Company is currently evaluating the impact, if any, that the adoption of SFAS No. 159 will have on the its Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and the Company will adopt SFAS No. 157 beginning in the first quarter of Fiscal 2008. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on its Consolidated Financial Statements.

This excerpt taken from the AEO 10-Q filed Sep 6, 2007.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 159 in connection with the adoption of SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on its Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 157 beginning in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 157 will have a material impact on its Consolidated Financial Statements.

This excerpt taken from the AEO 10-Q filed Jun 7, 2007.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 159 in connection with the adoption of SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on its Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 157 beginning in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 157 will have a material impact on its Consolidated Financial Statements.

This excerpt taken from the AEO 10-K filed Apr 4, 2007.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 159 in connection with the adoption of SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), in the first quarter of Fiscal 2008. The Company is currently assessing the impact of SFAS No. 159 on its Consolidated Financial Statements.

In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”). SAB No. 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006 and was adopted by the Company for Fiscal 2006. The adoption of SAB No. 108 did not have a material impact on the Company’s Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 157 beginning in the first quarter of Fiscal 2008. The Company is currently assessing the impact of SFAS No. 157 on its Consolidated Financial Statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109 (“FIN No. 48”). FIN No. 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under FIN No. 48, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, and the Company will adopt FIN No. 48 beginning in the first quarter of Fiscal 2007. Upon adoption, the cumulative effect of applying the provisions of FIN No. 48 will be accounted for as an adjustment to the beginning balance of retained earnings for the first quarter of Fiscal 2007. The Company is currently assessing the impact of FIN No. 48 on its Consolidated Financial Statements.

 

AMERICAN EAGLE OUTFITTERS   PAGE  37


In June 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 06-3, How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) (“EITF No. 06-3”). EITF No. 06-3 indicates that a company may adopt a policy of presenting taxes within the scope of EITF No. 06-3 either gross within revenue or net. If taxes subject to EITF No. 06-3 are significant, a company is required to disclose its accounting policy for presenting taxes and the amounts of the taxes that are recognized on a gross basis. EITF No. 06-3 is effective for the first interim period beginning after December 15, 2006, and the Company will adopt EITF No. 06-3 beginning in the first quarter of Fiscal 2007. The Company presents sales taxes collected from customers on a net basis within accrued income and other taxes on its Consolidated Balance Sheets, and will include disclosure of this accounting policy in its Consolidated Financial Statements upon adoption of EITF No. 06-3.

This excerpt taken from the AEO 10-K filed Apr 5, 2006.

Recent Accounting Pronouncements

FSP No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event

In February 2006, the FASB issued Staff Position No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event (“FSP No. 123(R)-4”). FSP No. 123(R)-4 requires companies to classify employee stock options and similar instruments with contingent cash settlement features as equity awards under SFAS No. 123(R), provided that: (1) the contingent event that permits or requires cash settlement is not considered probable of occurring; (2) the contingent event is not within the control of the employee; and (3) the award includes no other features that would require liability classification. The Company will implement the guidance in FSP No. 123(R)-4 in connection with its adoption of SFAS No. 123(R) in the first quarter of 2006. The Company does not permit or require the cash settlement of options upon any contingent events. Therefore, the Company does not believe that FSP No. 123(R)-4 will have an impact on its Consolidated Financial Statements.

FSP No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (“FSP No. 123(R)-3”). FSP No. 123(R)-3 provides an alternative transition method for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (the “APIC pool”) related to the tax effects of employee stock-based compensation and to determine the subsequent impact on the APIC pool and the statement of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123(R). The Company will implement the guidance in FSP No. 123(R)-3 in connection with its adoption of SFAS No. 123(R) in the first quarter of 2006. In accordance with this guidance, the Company will follow the transition method for the APIC pool as provided in SFAS No. 123(R) and will not apply the alternative transition methods provided by FSP No. 123(R)-3.

FSP No. FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)

In October 2005, the FASB issued Staff Position No. FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R) (“FSP No. 123(R)-2”). FSP No. 123(R)-2 provides guidance on determining the grant date for an award as defined in SFAS No. 123(R). Assuming all other criteria in the grant date definition are met, FSP No. 123(R)-2 permits companies to measure compensation cost for awards subject to SFAS No. 123(R) on the Board of Directors approval date, provided that the key terms and conditions of an award (a) cannot be negotiated by the recipient with the employer because the award is a unilateral grant and (b) are expected to be communicated to an individual recipient within a relatively short time period from the date of approval. FSP No. 123(R)-2 is required to be applied upon initial adoption of SFAS No. 123(R). The Company does not believe that the adoption of FSP No. 123(R)-2 will have a material impact on its Consolidated Financial Statements and will implement the guidance in connection with its adoption of SFAS No. 123(R) in the first quarter of 2006.

FSP No. FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R)

In September 2005, the FASB issued Staff Position No. FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R) (“FSP No. 123(R)-1”). FSP No. 123(R)-1 defers indefinitely the requirement of SFAS No. 123(R) that a share-based payment to an employee subject to

 

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SFAS No. 123(R) becomes subject to the recognition and measurement requirements of other applicable GAAP when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee. FSP No. 123(R)-1 is required to be applied upon initial adoption of SFAS No. 123(R). The Company does not believe that the adoption of FSP No. 123(R)-1 will have an impact on its Consolidated Financial Statements and will implement the guidance in connection with its adoption of SFAS No. 123(R) in the first quarter of 2006.

FSP No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period

In October 2005, the FASB issued Staff Position No. FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP No. 13-1”). FSP No. 13-1 indicates that there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period and requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. Adoption is required for the first reporting period beginning after December 15, 2005. The Company is in compliance with FSP No. 13-1, and therefore, the adoption of FSP No. 13-1 will not have an impact on its Consolidated Financial Statements.

SFAS No. 154, Accounting Changes and Error Corrections

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for voluntary changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions and makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the correction of an error. Additionally, SFAS No. 154 requires that a change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe that the adoption of SFAS No. 154 will have an impact on its Consolidated Financial Statements.

FSP No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004

In December 2004, the FASB issued Staff Position No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP No. 109-2”). FSP No. 109-2 provides guidance to companies to determine how the American Jobs Creation Act of 2004 (the “Act”) affects a company’s accounting for the deferred tax liabilities on un-remitted foreign earnings. The Act provides for a special one-time deduction of 85% of certain foreign earnings that are repatriated and which meet certain requirements. Although the deduction is subject to a number of limitations and significant uncertainty remains as to how to interpret numerous provisions in the Act, the Company believes that it has the necessary information to make an informed decision on the impact of the Act on its repatriation plans. Based on that decision, the Company plans to repatriate certain earnings generated prior to the tax year ending July 29, 2006 as extraordinary dividends from its Canadian subsidiaries, as defined in the Act. These earnings were previously considered permanently reinvested. As of January 28, 2006, unremitted Canadian earnings subject to repatriation approximated $73 million. Accordingly, the Company has recorded a tax liability of $3.8 million related to the planned repatriation of this amount. As additional Canadian earnings are generated before the end of the tax year ending July 29, 2006, additional tax liabilities will be recorded.

The decision to take advantage of the special one-time deduction under the Act is a discrete event and it has not changed the Company’s intention to indefinitely reinvest accumulated earnings from its Canadian Operations to the extent not repatriated under the Act. Accordingly, no provision will be made for income taxes that would be payable upon the distributions of such earnings.

 

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SFAS No. 123 (revised 2004), Share-Based Payment

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), a revision of SFAS No. 123. SFAS No. 123(R) requires that companies recognize all share-based payments to employees, including grants of employee stock options, in the financial statements. The recognized cost will be based on the fair value of the equity or liability instruments issued. Pro forma disclosure of this cost will no longer be an alternative under SFAS No. 123(R).

In April 2005, the SEC adopted a rule that amended the effective dates of SFAS No. 123(R). Under this guidance, SFAS No. 123(R) is effective for public companies at the beginning of the first fiscal year that begins after June 15, 2005. Transition methods available to public companies include either the modified prospective or modified retrospective adoption. The modified prospective transition method requires that compensation cost be recognized beginning on the effective date, or date of adoption if earlier, for all share-based payments granted after the date of adoption and for all unvested awards existing on the date of adoption. The modified retrospective transition method, which includes the requirements of the modified prospective transition method, additionally requires the restatement of prior period financial information based on amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures. The Company will adopt the new standard in the first quarter of Fiscal 2006 using the modified prospective transition method.

The Company currently accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, using the intrinsic value method. As a result of using this method, the Company generally recognizes no compensation cost for employee stock options. The adoption of SFAS No. 123(R) and the use of the fair value method will have an impact on our results of operations. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current standards. This requirement will reduce net operating cash flows and increase net financing cash flows in the periods after adoption. We cannot estimate what those amounts will be in the future because they are dependent on, among other things, when employees exercise stock options.

Historically, for pro forma reporting purposes the Company has followed the nominal vesting period approach for stock-based compensation awards with retirement eligibility provisions. Under this approach, the Company recognizes compensation expense over the vesting period of the award. If an employee retires before the end of the vesting period, any remaining unrecognized compensation cost is recognized at the date of retirement. SFAS No. 123(R) requires recognition of compensation cost under a non-substantive vesting period approach. This approach requires recognition of compensation expense over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. Additionally, for awards granted to retirement eligible employees, the full compensation cost of an award must be recognized immediately upon grant. Refer to the Stock Option Plan disclosure on pages 40 and 41 of this Annual Report on Form 10-K for additional discussion of the non-substantive vesting period approach.

Based on its current analysis and information, the Company has determined that the impact of adopting SFAS No. 123(R) will result in a reduction of net income and expects diluted earnings per share to be reduced by approximately $0.04 to $0.05 on a full year basis for Fiscal 2006.

Staff Accounting Bulletin No. 107, Share-Based Payment

In March 2005, the SEC issued Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB No. 107”). SAB No. 107 provides guidance regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations, including guidance related to valuation methods; the classification of compensation expense; non-GAAP financial measures; the accounting for income tax effects of share-based payment arrangements; disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS No. 123(R); and modifications of options prior to the adoption of SFAS No. 123(R). The Company will implement the guidance in SAB No. 107 in connection with its adoption of SFAS No. 123(R) in the first quarter of 2006.

 

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