Sunbeam 2005 Annual Report Download - page 31

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Management’s Discussion and Analysis of Financial Condition and
Results of Operations (cont’d)
Contingencies,” we accrue an estimated liability at the time of a product sale based on historical claim rates
applied to current period sales, as well as any information applicable to current product sales that may
indicate a deviation from such historical claim rate trends.
Contingencies
We are involved in various legal disputes and other legal proceedings that arise from time to time in
the ordinary course of business. In addition, the Environmental Protection Agency has designated our
Company as a potentially responsible party, along with numerous other companies, for the clean up of
several hazardous waste sites. Based on currently available information, we do not believe that the
disposition of any of the legal or environmental disputes our Company is currently involved in will require
material capital or operating expenditures or will otherwise have a material adverse effect upon the
consolidated financial condition, results of operations, cash flows or competitive position of our Company.
It is possible, that as additional information becomes available, the impact on our Company of an adverse
determination could have a different effect.
New Accounting Pronouncements
In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). SFAS 151 requires the exclusion of certain
costs from inventories and the allocation of fixed production overheads to inventories to be based on
normal capacity of the production facilities. The provisions of SFAS 151 are effective for costs incurred
during fiscal years beginning after June 15, 2005. Earlier adoption is permitted for inventory costs incurred
during fiscal years beginning after the issuance date of SFAS 151. The Company is currently evaluating the
effect that the adoption of SFAS 151 will have on its consolidated financial statements but does not expect
SFAS 151 to have a material effect.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R, which
requires companies to expense the value of share based payment awards. Under SFAS 123R, share-based
payment awards result in compensation cost that will be measured at fair value on the grant date of the
awards, based on the estimated number of awards expected to vest, and is recognized over the requisite
service periods. Compensation cost for awards that vest would not be reversed if the awards expire without
being exercised, and compensation cost would not be reversed for awards where service periods have been
rendered but market or performance criterion are not met. The Company adopted SFAS 123R effective
October 1, 2005 using the modified prospective transition method for all unvested and outstanding share
awards as of the date of adoption, and as such, the Company’s consolidated financial statements for the
three months ended December 31, 2005 reflect the impact of SFAS 123R. Under this method, the
Company did not restate its financial statements for prior periods to reflect compensation cost under SFAS
123R. During the three months ended December 31, 2005, the Company recorded compensation costs
related to this pronouncement, which included the effects of any grants made during the quarter, of
approximately $31.8 million. The impact of this cumulative effect of change in accounting principle, net of
taxes, was $0.1 million.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 “Transition Election
Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company elected to adopt
the alternative transition method provided in this FSP for calculating the tax effects of stock-based
compensation pursuant to SFAS 123R, which method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of
employee stock-based compensation, and to determine the subsequent impacts on the APIC pool and
Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards
that are outstanding upon adoption of SFAS 123R.
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