Invacare 2008 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2008 Invacare annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
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):
2008 2007 2006
Stock-based compensation expense recognized as part of selling, general and
administrative expense ................................................ $3,299 $2,554 $1,587
The amounts above reflect compensation expense related to restricted stock awards and nonqualified stock
options awarded under the 2003 Performance Plan. 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.
Income Taxes: The company uses the liability method in measuring the provision for income taxes and
recognizing deferred tax assets and liabilities on the balance sheet. The liability method requires that deferred
income taxes reflect the tax consequences of currently enacted rates for differences between the tax and financial
reporting bases of assets and liabilities. Undistributed earnings of the company’s foreign subsidiaries are
considered to be indefinitely reinvested and, accordingly, no provision for income taxes has been provided for
unremitted earnings of foreign subsidiaries. The amount of the unrecognized deferred tax liability for temporary
differences related to investments in foreign subsidiaries that are permanently reinvested is not practically
determinable.
Derivative Instruments: The company recognizes its derivative instruments as assets or liabilities in the
consolidated balance sheet measured at fair value. A majority of the company’s derivative instruments are
designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on
the derivative instrument in excess of the cumulative change in the fair value of the hedged item, if any, is
recognized in current earnings during the period of change.
The company is a party to interest rate swap agreements that qualify as cash flow hedges and effectively
convert floating-rate debt to fixed-rate debt, so the company can avoid the risk of changes in market interest
rates. Until the company refinanced its debt in February 2007, the company was also a party to interest rate swap
agreements that qualified as fair value hedges and effectively converted fixed-rate debt to floating-rate debt, so
the company could avoid paying higher than market interest rates. The company recognized net losses of
$2,684,000, $394,000 and $696,000 in 2008, 2007 and 2006, respectively related to its swap agreements, which
is reflected in interest expense on the consolidated statement of operations.
To protect against increases/decreases in forecasted foreign currency cash flows resulting from inventory
purchases/sales over the next year, the company utilizes foreign currency forward contracts to hedge portions of
its forecasted purchases/sales denominated in foreign currencies. The company recognized a net loss of $26,000
in 2008, a net gain of $451,000 in 2007 and a net loss of $240,000 in 2006 on foreign currency cash flow hedges.
The gains and losses are included in cost of products sold and selling, general and administrative expenses on the
consolidated statement of operations.
The company recognized no gain or loss related to hedge ineffectiveness or discontinued cash flow hedges.
If it is later determined that a hedged forecasted transaction is unlikely to occur, any gains or losses on the
forward contracts would be reclassified from other comprehensive income into earnings. The company does not
FS-10