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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.
Table of Contents
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.
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