This excerpt taken from the CTSH 10-K filed Mar 15, 2006.
Reclassifications. Certain prior-year amounts have been reclassified to conform to the 2005 presentation.
New Accounting Standards - Issued but Not Yet Effective
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement when specific transition provisions are not provided. SFAS No. 154 requires retrospective application to prior periods financial statements for changes in accounting principle, unless it is impracticable to determine the period specific or cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options and issuances under employee stock purchase plans, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative under the new standard. In addition, SFAS No. 123R requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under current accounting rules. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. Total cash flow will remain unchanged from what would have been reported under prior accounting rules. SFAS No. 123R is effective for the Companys annual reporting period beginning January 1, 2006.
The Company will adopt SFAS No., 123R on January 1, 2006, utilizing the modified prospective method. Adoption of SFAS No. 123R will reduce reported net income and earnings per share because the Company currently uses the intrinsic value method as permitted by APB No. 25. Accordingly, no compensation expense is currently recognized for stock purchase rights
F - 16
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
granted under the Companys (i) employee stock option plans since the exercise price equals the fair value of the underlying stock at date of grant and (ii) employee stock purchase plan. For the year ended December 31, 2006, the Company expects the annualized after-tax cost associated with expensing grants under the Companys employee stock option and employee stock purchase plans, including an estimate of grants to be issued in 2006, to be slightly above the pro forma impact under SFAS No. 123 of $17,990 in 2005.