Invacare 2006 Annual Report Download - page 51

ACCOUNTING CHANGES
In September 2006, the Financial Accounting Standards Board “FASB” issued SFAS No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R), or “FAS 158.” FAS 158 requires plan sponsors to recognize the funded status of their
defined benefit postretirement benefit plans in the consolidated balance sheet, measure the fair value of plan assets
and benefit obligations as of the balance sheet date and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income. The company adopted the provisions of FAS 158 on
December 31, 2006. The adoption required the company to recognize the funded status (i.e., the difference between
the fair value of plan assets and the projected benefit obligations) of our postretirement benefit plan in the
December 31, 2006 balance sheet, with a corresponding adjustment to accumulated other comprehensive income,
net of tax. The adoption of FAS 158 did not affect the company’s consolidated statement of operations for the year
ended December 31, 2006, or for any prior period presented. See Retirement and Benefit Plans in the Notes to the
Consolidated Financial Statements included in this report.
In December 2004, FASB issued SFAS 123R, which required companies to expense stock options and other
share-based payments. SFAS 123R supersedes SFAS No. 123, which permitted either expensing stock options or
providing pro forma disclosure. The provisions of SFAS 123R, which were effective for the company on January 1,
2006, apply to all awards granted, modified, cancelled or repurchased after January 1, 2006 as well as the unvested
portion of prior awards. The company adopted the standard as of January 1, 2006. See Shareholders’ Equity
Transactions in the Notes to the Consolidated Financial Statements included in this report.
In the fourth quarter of 2006, the company expanded its number of reporting segments from three to five due to
organizational changes within the former North American geographic operating segment and changes in how the
chief operating decision maker assesses performance and makes resource allocation decisions. Accordingly, the
company has modified its operating segments and reportable segments in 2006 with the corresponding prior year
amounts being reclassified to conform to the 2006 presentation. See Business Segments in the Notes to the
Consolidated Financial Statements included in this report.
In 2006, the company determined that the reported December 31, 2005 accumulated benefit for the company’s
non-qualified defined benefit Supplemental Executive Retirement Plan (SERP) was understated by $2,941,000
($1,912,000 after-tax), or $0.06 per share, as the result of accounting errors in which recorded expense in prior years
was netted by SERP benefit payments. The company assessed the error amounts considering SEC Staff Accounting
Bulletin No. 99, Materiality, as well as SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, or “SAB 108.” The
error was not material to any prior period reported financial statements, but was material in the current year.
Accordingly, the company recorded the correction of the understatement of expense as an adjustment to beginning
retained earnings pursuant to the special transition provision detailed in SAB 108.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,an
interpretation of FASB Statement No. 109, or “FIN 48.” FIN 48 prescribes recognition and measurement of a tax
position taken or expected to be taken in a tax return as well as guidance regarding derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006, thus January 1, 2007 for Invacare. The company will adopt the standard as of
the effective date and currently does not believe the adoption will have a material impact on the company’s financial
position or future results.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The company is exposed to market risk through various financial instruments, including fixed rate and floating
rate debt instruments. The company uses interest swap agreements to mitigate its exposure to interest rate
fluctuations. Based on December 31, 2006 debt levels, a 1% change in interest rates would impact interest expense
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