Invacare 2007 Annual Report Download - page 55

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Income Taxes
As part of the process of preparing its financial statements, the company is required to estimate income
taxes in various jurisdictions. The process requires estimating the company’s current tax exposure, including
assessing the risks associated with tax audits, as well as estimating temporary differences due to the different
treatment of items for tax and accounting policies. The temporary differences are reported as deferred tax assets
and or liabilities. The company also must estimate the likelihood that its deferred tax assets will be recovered
from future taxable income and whether or not valuation allowances should be established. In the event that
actual results differ from estimates, the company’s provision for income taxes could be materially impacted.
The company does not believe that there is a substantial likelihood that materially different amounts would
be reported related to its critical accounting policies.
ACCOUNTING CHANGES
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. The company adopted the
provisions of FIN 48 on January 1, 2007. Upon adoption, the company did not recognize an adjustment in the
liability for unrecognized income tax benefits. The company continues to recognize interest and penalties related
to uncertain tax positions in income tax expense.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September, 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157,
Fair Value Measurements, which creates a framework for measuring fair value, clarifies the definition of fair
value and expands the disclosures regarding fair value measurements. Statement No. 157 does not require any
new fair value measurements and is effective for fiscal years beginning after November 15, 2007, thus January 1,
2008. The company adopted the new 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 as the company is already
performing its goodwill and intangible valuation calculations and estimating the fair value of the company’s
financial instruments using methodology which is principally consistent with Statement No. 157.
On September 5, 2007, the FASB exposed for comment FASB Staff Position APB 14-a (FSP APB 14-a) to
provide clarification of the accounting for convertible debt that can be settled in cash upon conversion. The
FASB believes this clarification is needed because the current accounting being applied for convertible debt does
not fully reflect the true economic impact on the issuer since the conversion option is not captured as a borrowing
cost and its full dilutive effect is not included in earnings per share. The proposed FSP would require separate
accounting for the liability and equity components of the convertible debt in a manner that would reflect
Invacare’s nonconvertible debt borrowing rate. The company would be required to bifurcate a component of its
convertible debt as a component of stockholders’ equity and accrete the resulting debt discount as interest
expense. The comment period regarding the exposure draft ended October 15, 2007 and the exposure draft is
currently being redeliberated by the FASB. Should the proposed FSP become effective as drafted, the change
could materially impact the company’s interest expense and earnings per share. The most recent proposed
effective date was January 1, 2008 with retrospective application required for all periods presented and no
grandfathering for existing instruments.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141(R)), which
changes the accounting for business acquisitions. SFAS 141(R) requires the acquiring entity in a business
combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes
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