Invacare 2007 Annual Report Download - page 74

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
Effective January 1, 2006, the company adopted SFAS No. 123R using the modified prospective application
method. Under the modified prospective method, compensation cost has been recognized since January 1, 2006
for: 1) all stock-based payments granted subsequent to January 1, 2006 based upon the grant-date fair value
calculated in accordance with SFAS No. 123R, and 2) all stock-based payments granted prior to, but not vested
as of, January 1, 2006 based upon grant-date fair value as calculated for previously presented pro forma footnote
disclosures in accordance with the original provisions of SFAS No. 123, Accounting for Stock Based
Compensation. The amounts of stock-based compensation expense recognized were as follows (in thousands):
2007 2006 2005
Stock-based compensation expense recognized as part of selling, general and
administrative expense ................................................. $2,554 $1,587 $881
The 2007 and 2006 amounts above reflect compensation expense related to restricted stock awards and
nonqualified stock options awarded under the 2003 Performance Plan. The 2005 amount reflects compensation
expense recognized for restricted stock awards only, before SFAS No. 123R was adopted. Stock-based
compensation is not allocated to the business segments, but is reported as part of All Other as shown in the
company’s Business Segment Note to the Consolidated Financial Statements.
Pursuant to the modified prospective application method, results for periods prior to January 1, 2006 have
not been restated to reflect the effects of adopting SFAS No. 123R. The pro forma information below is
presented for comparative purposes, as required by SFAS No. 148, Accounting for Stock-Based Compensation —
Transition and Disclosure, an amendment of FASB Statement No. 123, to illustrate the pro forma effect on net
earnings and related earnings per share for 2005, as if the company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based compensation for 2005 (in thousands):
2005
Net earnings, as reported .............................................................. $48,852
Add: Stock-based compensation expense included in reported earnings, net of tax ($308) .......... 573
Deduct: Total stock-based compensation expense determined under fair value-based method for all
awards, net of tax ($7,993) .......................................................... (14,845)
Adjusted net earnings ................................................................ $34,580
Net earnings per share:
Basic—as reported .................................................................. $ 1.55
Basic—as adjusted for stock-based compensation expense ................................... $ 1.10
Diluted—as reported ................................................................. $ 1.51
Diluted—as adjusted for stock-based compensation expense ................................. $ 1.07
On December 21, 2005, the company’s Board of Directors, based on the recommendation of the
Compensation, Management Development and Corporate Governance Committee, approved the acceleration of
the vesting for substantially all of our unvested stock options, which were then underwater. The Board of
Directors decided to approve the acceleration of the vesting of these stock options primarily to partially offset
certain reductions in other benefits made by the company and to provide additional incentive to those employees
critical to our cost reduction efforts.
The decision, which was effective as of December 21, 2005, accelerated the vesting for a total of 1,368,307
options on the company’s common shares, including 646,100 shares underlying options held by the company’s
named executive officers. The stock options accelerated equated to 29% of the company’s total outstanding stock
options. Vesting was not accelerated for the restricted stock awards granted under the company’s stock-based
FS-10