This excerpt taken from the ZZ 10-K filed Feb 23, 2007.
Effective August 29, 2005 (the beginning of the fourth quarter of fiscal 2005) the Company adopted the provisions of FAS No. 123 (revised 2004) Share Based Payment (FAS 123(R)). Previously, as permitted by FAS No. 123, Accounting for Stock Based Compensation (FAS 123), the Company accounted for its stock option and stock incentive plans in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and recorded no charges (except to the extent required by APB Opinion No. 25) against earnings with respect to options granted. Prior to the Companys June 30, 2005 filing of a registration statement on Form S-1, the Company had been considered a nonpublic entity as defined by both FAS 123 and FAS 123(R), and had used the minimum value method of measuring equity share options for pro forma disclosure purposes. Accordingly, the Company is required to apply the provisions of FAS 123(R) prospectively to new awards and to awards modified, repurchased, or cancelled after the date of adoption. (See Note 4) The Company elected to use the alternative short cut method described in FASB Staff Position 123(R)-3 for determining the pool of available paid in capital against which any future tax benefit deficiencies arising from the exercise of options may be offset (the APIC pool). The Company shall continue to account for any portion of awards outstanding at August 29, 2005 using the provisions of APB 25 as previously permitted under FAS 123.
In connection with its adoption of FAS 123(R), the Company has reclassified as temporary equity amounts previously included in additional paid in capital that are associated with outstanding shares and options which, under the terms of management shareholder agreements, are potentially redeemable in certain circumstances outside of the Companys control (see Note 18).