Interpretive Release Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement Into the Pediatric Vaccine Stockpile or the Strategic National Stockpile 33-8642, 34-52885, IC-27178

SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 231, 241, and 271
[Release Nos. 33-8642; 34-52885; IC-27178]
Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror
Countermeasures to the Federal Government for Placement into the Pediatric
Vaccine Stockpile or the Strategic National Stockpile
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation.
SUMMARY: The Securities and Exchange Commission (Commission) is publishing
this interpretive release with respect to accounting for sales of vaccines and bioterror
countermeasures to the Federal government for placement into stockpiles related to the
Vaccines for Children Program or the Strategic National Stockpile.
EFFECTIVE DATE: December 5, 2005.
FOR FURTHER INFORMATION CONTACT: Shelly C. Luisi, Senior Associate
Chief Accountant or G. Anthony Lopez, Associate Chief Accountant, both of the Office
of the Chief Accountant, at (202) 551-5300, oca@sec.gov, U.S. Securities and Exchange
Commission, 100 F Street, NE, Washington, DC 20549-6561.
SUPPLEMENTARY INFORMATION:
I. 	Introduction
The Commission is committed to addressing any unintended consequences of
accounting requirements that could impair the nation’s ability to create and maintain
sufficient supplies of various vaccines and bioterror countermeasures (vaccines). The
Commission is aware that questions have been raised about the timing of the vaccine
manufacturers’ revenue recognition for vaccines placed into stockpiles related to the

Vaccines for Children Program and the Strategic National Stockpile. Additionally,
concerns have been expressed that Commission guidance, which may require revenue
recognition to be delayed beyond the period in which the vaccine is placed in the
stockpile in some circumstances, may have the unintended consequence of causing some
vaccine manufacturers to decline to participate in these critical stockpile programs.
Although the Commission is not aware of any instance to date of a vaccine manufacturer
declining to participate in these programs based on the resulting accounting, the
Commission is publishing this guidance to remove the accounting questions from the
debate.
Government vaccine stockpile programs are unique in many respects. For
example, the primary objective of purchasing the vaccines is not to take delivery but
rather to be able to require delivery on a moment’s notice. The hope of both parties to
these contracts is that the vaccines will never be needed and thus never delivered.
Another unique characteristic of vaccine stockpile programs is the critical public policy
objective of safeguarding the public health in the event of potentially catastrophic disease
outbreaks. An additional unusual characteristic of vaccine stockpiles is the need for
rotation of the stockpile due to limited shelf life. For these and other reasons, the
Commission limits this guidance to the vaccines enumerated below (enumerated
vaccines).
II. 	The Application of Generally Accepted Accounting Principles for Revenue
Recognition to Vaccine Stockpiles
The Commission historically has recognized pronouncements of the Financial
Accounting Standards Board (FASB) as authoritative in the absence of any contrary
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determination by the Commission.1 More recently, in Financial Reporting Release No.
70,2 the Commission announced its determination that the FASB and its parent
organization, the Financial Accounting Foundation, satisfied the criteria in section 108 of
the Sarbanes-Oxley Act of 20023 and section 19(b) of the Securities Act of 19334 and,
accordingly, FASB’s financial accounting and reporting standards are recognized as
“generally accepted” for purposes of the federal securities laws. As a result, registrants
are required to comply with those standards in preparing financial statements filed with
the Commission, unless the Commission provides otherwise.5
Although no specific guidance has been published by the FASB related to revenue
recognition for vaccine stockpiles, general criteria for revenue recognition are discussed
in the FASB’s Concepts Statements. Statement of Financial Accounting Concepts No. 5,
Recognition and Measurement in Financial Statements of Business Enterprises (Concepts
Statement 5) identifies two criteria necessary for revenue recognition: the revenue must
be realized or realizable and earned.6 Concepts Statement 5 goes on to explain that
“revenues are considered to have been earned when the entity has substantially
accomplished what it must do to be entitled to the benefits represented by the revenues”7
and that the two conditions for revenue recognition are “usually met by the time product
or merchandise is delivered….”8
1 Rule 4-01(a)(1) of Regulation S-X, 17 CFR 210.4-01(a)(1). See Accounting Series Release (“ASR”) No.
150 (December 20, 1973) and ASR No. 4 (April 25, 1938).
2 Release Nos. 33-8221; 34-47743; IC-26028; FR-70 (April 25, 2003) (“FR-70”); 68 FR 23333 (May 1,
2003).
3 15 U.S.C. 7218
4 15 U.S.C 77s(b).
5 See FR-70; Rule 4-01(a)(1) of Regulation S-X, 17 CFR 210.4-01(a)(1).
6 See Concepts Statement 5, ¶83 (a) and (b).
7 Concepts Statement 5, ¶83(b).
8 Concepts Statement 5, ¶84(a).
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In 1986, in Securities Exchange Act Release No. 23507 and Accounting and
Auditing Enforcement Release No. 108, In the Matter of Stewart Parness (AAER 108),
the Commission set forth criteria to be met in order to recognize revenue when delivery
has not occurred.9 Of the seven criteria AAER 108 set forth as necessary for revenue
recognition in the absence of delivery (commonly referred to as “bill and hold”), transfers
of vaccines to government stockpiles sometimes do not satisfy the following two:
• 	There must be a fixed schedule for delivery of the goods; and
• 	The ordered goods must have been segregated from the seller's inventory
and not be subject to being used to fill other orders. 10
III. 	Current Commission Guidance
Notwithstanding the Commission’s previous guidance discussed above, the
Commission will not object if vaccine manufacturers recognize revenue from the sale of
enumerated vaccines related to Federal governmental stockpile programs if the
arrangements meet the applicable revenue recognition criteria specified under generally
accepted accounting principles and Commission rules and regulations, other than for the
requirements associated with product delivery and inventory segregation noted above, so
long as disclosures are provided that allow for a clear understanding by investors of the
subject transactions, the related accounting, and the effect of this alternative accounting
method in the financial statements.
The following vaccines are subject to this Release when sold to the Federal
government for purposes of placing the vaccines into a Federal governmental vaccine
stockpile (enumerated vaccines):
9 See In the Matter of Stewart Parness, AAER 108 (August 5, 1986). The Commission staff reiterated this
guidance in Staff Accounting Bulletin (SAB) Topic 13 in 1999 through the issuance of SAB 101.
10 See SAB Topic 13. A. 3 and AAER 108.
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• 	Childhood disease vaccines;
• 	Influenza vaccines; and
• 	Other vaccines and countermeasures sold to the Federal government for
placement in the Strategic National Stockpile.
The Commission would not object if a registrant that sells enumerated vaccines
elects this alternative accounting method beginning in the first fiscal quarter of the
registrant’s next fiscal year. If elected, the change in accounting represents a change in
accounting principle under FASB Statement No. 154, Accounting Changes and Error
Corrections. No preferability letter would be required if an accounting change is made
solely in response to the adoption of the alternative method described above.
Any financial statements filed with the Commission before adoption of the
provisions of this announcement would be subject to the disclosure provisions of SAB
Topic 11-M, Disclosure of the Impact That Recently Issued Accounting Standards Will
Have on the Financial Statements of a Registrant When Adopted in a Future Period.
Due to the uniqueness of the vaccine stockpile programs as discussed above, the
alternative method is available only to the sales of enumerated vaccines by vaccine
manufacturers and may not be extended by analogy to other circumstances.
IV. 	Financial Statement and Other Disclosures
If the alternative accounting method is elected, the Commission believes that
sufficient disclosures should be provided to allow for a clear understanding by investors
of the subject transactions, related accounting, and the effect of the alternative accounting
method in the financial statements. The following disclosures should be considered:
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A. 	Material terms and conditions of contracts for which the alternative
accounting method was selected, including all fees received and a description of
each enumerated vaccine product that the vaccine manufacturer sells to vaccine
stockpiles. The vaccine manufacturer should also describe the nature of its
continuing involvement with the stockpiles for enumerated vaccine products for
which revenue has been recognized, such as stock rotation. Additionally, the
election of this alternative form of revenue recognition would generally be a
significant accounting policy under APB Opinion No. 22, Disclosure of
Accounting Policies. Vaccine manufacturers should clearly disclose that this
alternative policy applies only to enumerated vaccine product sales.
B. 	Disclosures quantifying the effects of using the alternative policy
on relevant balance sheet and income statement captions, including revenue, cost
of sales, inventory and deferred revenue.
C. 	Supplemental disclosure of the market value of inventory available
to be rotated out of vaccine stockpiles and of sales to third parties that were filled
from vaccine stockpiles.
D. 	Supplemental disclosure of enumerated vaccine product quantities
and related product sales revenue for enumerated vaccines actually delivered from
stockpiles to the CDC or other party for use during the period (i.e., delivered out
of stockpiles).
List of Subjects
17 CFR Parts 231, 241, and 271
Securities.
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Amendments to the Code of Federal Regulations
For the reasons set out in the preamble, the Commission is amending Title 17,
chapter II of the Code of Federal Regulations as set forth below:
PART 231 – INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
ACT OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
Part 231 is amended by adding Release No. 33-8642 and the release date of
December 5, 2005 to the list of interpretive releases.
PART 241 – INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS
THEREUNDER
Part 241 is amended by adding Release No. 34-52885 and the release date of
December 5, 2005 to the list of interpretive releases.
PART 271 – INTERPRETATIVE RELEASES RELATING TO THE
INVESTMENT COMPANY ACT OF 1940 AND GENERAL RULES AND
REGULATIONS THEREUNDER
Part 271 is amended by adding Release No. IC-27178 and the release date of
December 5, 2005 to the list of interpretive releases.
By the Commission.
Jonathan G. Katz
Secretary
Dated: December 5, 2005
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