This excerpt taken from the BAX 10-K filed Feb 28, 2007.
Adoption of SFAS No. 158
The company adopted SFAS No. 158 on December 31, 2006. The new standard requires companies to fully recognize the overfunded or underfunded status of each of its defined benefit pension and other postemployment benefit (OPEB) plans as an asset or liability in the consolidated balance sheet. The asset or liability equals the difference between the fair value of the plans assets and its benefit obligation. SFAS No. 158 has no impact on the amount of expense recognized in the consolidated statement of income.
SFAS No. 158 is required to be adopted on a prospective basis. Therefore, the companys December 31, 2005 consolidated balance sheet was not restated. The adoption of SFAS No. 158 was recorded as an adjustment to assets and liabilities to reflect the plans funded status (rather than a prepaid asset or accrued liability), with a corresponding decrease in AOCI, which is a component of shareholders equity. The net-of-tax decrease in AOCI at December 31, 2006 relating to the adoption of SFAS No. 158 was $235 million. The impact of adoption of SFAS No. 158 on individual line items in the companys consolidated balance sheet at December 31, 2006 (including related deferred tax balances) was a decrease in the short-term deferred income tax asset of $1 million, an increase in other long-term assets of $90 million, a decrease in accounts payable and accrued liabilities
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
of $15 million, and an increase in other long-term liabilities of $339 million.
The net total after-tax decrease in AOCI in 2006 relating to defined benefit pension and OPEB plans was $83 million, consisting of a net-of-tax increase in AOCI of $152 million relating to the adjustment of the additional minimum pension liability for the year and the above-mentioned decrease in AOCI of $235 million relating to the adoption of SFAS No. 158.
In future years, unrecognized amounts included in AOCI at December 31, 2006 will be reclassified from AOCI to retained earnings as the amounts are recognized in the consolidated income statement pursuant to SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. As noted above, SFAS No. 158 does not change the amount of net pension and OPEB cost that is to be recognized under SFAS Nos. 87, 88 and 106.
As required by SFAS No. 158, the assets associated with overfunded plans are classified as noncurrent in the consolidated balance sheet. Liabilities associated with underfunded plans are classified as noncurrent, except to the extent the fair value of the plans assets is less than the plans estimated benefit payments over the next 12 months. In conjunction with the adoption of SFAS No. 158 on December 31, 2006, the company made the required current and noncurrent reclassifications in its consolidated balance sheet.
The company uses a September 30 measurement date for its pension and OPEB plans. Effective no later than the year ending December 31, 2008, SFAS No. 158 requires that the measurement date be changed to December 31, the companys fiscal year-end.