This excerpt taken from the ELN 20-F filed Mar 30, 2006.
31. New Accounting Pronouncements Not Yet Adopted
In December 2004, the FASB issued SFAS 123R, effective for public companies in periods beginning after June 15, 2005. In April 2005, the SEC adopted a rule amendment that delayed the compliance dates for SFAS 123R to the first annual period beginning after June 15, 2005. We will adopt SFAS 123R effective January 1, 2006 and will elect to use the modified prospective transition method. Under the modified prospective transition method, awards that are granted, modified, repurchased or canceled after the date of adoption will be measured and accounted for in accordance with SFAS 123R. Share-based awards that were granted prior to the effective date will continue to be accounted for in accordance with SFAS 123, except that the expense based on the fair value of unvested awards must be recognized in the Consolidated Statement of Operations.
SFAS 123R requires companies to measure all share-based awards to employees using a fair value method and to recognize the expense over the requisite service period. We will elect to recognize compensation cost for an award using a graded-vesting method over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107), which provides supplemental implementation guidance for SFAS 123R in a number of areas including, the valuation of share-based payment arrangements.
The impact of adoption of SFAS 123R is estimated to increase our pre-tax expense by between $40.0 million and $50.0 million for 2006. This estimate could change materially because it will depend on, among other things, levels of share-based payments granted, the market value of our common stock, and assumptions regarding a number of complex variables. These variables include, but are not limited to, our stock price, volatility and employee stock option exercise behaviors and the related tax impact.
As a result of the anticipated adoption of SFAS 123R and in conjunction with our annual total compensation review in 2005, we adjusted the equity component of our total compensation and have recently started issuing restricted stock units in addition to stock option awards. We also implemented employee equity purchase plans for employees in the United States, Ireland and the United Kingdom, which provides eligible employees the opportunity to share in the ownership of the Company by purchasing stock at a discount. See Note 23 for more information on the employee equity purchase plans.
Elan Corporation, plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 2004, the FASB issued Statement No. 151, Inventory Costs: an amendment of ARB No. 43, Chapter 4 (SFAS 151), which is effective for public companies prospectively for inventory costs incurred in periods beginning after June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify that accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as a current period charge and to require the allocation of fixed production overhead to the costs of conversion based on normal capacity of the production facilities. We do not expect that the adoption of SFAS 151 will have a material impact on our financial position or results of operations.
In February 2006, the FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments, (SFAS 155), which is effective for public companies for fiscal years beginning after September 15, 2006, with early adoption permitted. SFAS 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation and separate accounting. An irrevocable election may be made at inception to measure such a hybrid financial instrument at fair value, with changes in fair value recognized through income. Such an election needs to be supported by concurrent documentation. We do not expect that the adoption of SFAS 155 will have a material impact on our financial position or results of operations.