Invacare 2008 Annual Report Download - page 78

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
Recent 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. 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.
In September, 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157
(FAS 157), Fair Value Measurements, which created a framework for measuring fair value, clarified the
definition of fair value and expanded the disclosures regarding fair value measurements. FAS 157 did not require
any new fair value measurements. The company adopted the new standard as of January 1, 2008 for assets and
liabilities measured at fair value on a recurring basis and the adoption had no material impact on the company’s
financial position, results of operations or cash flows. For assets and liabilities measured at fair value on a
nonrecurring basis, such as goodwill and intangibles, the company elected to adopt as of January 1, 2009 the
provisions of FAS 157 as allowed pursuant to FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157. The adoption of FAS 157 for assets and liabilities measured at fair value on a nonrecurring basis had no
material impact on the company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R), which changed
the accounting for business acquisitions. SFAS 141R requires the acquiring entity in a business combination to
recognize all the assets acquired and liabilities assumed in the transaction and establishes principles and
requirements as to how an acquirer should recognize and measure in its financial statements the assets acquired,
liabilities assumed, any non-controlling interest and goodwill acquired. SFAS 141R also requires expanded
disclosure regarding the nature and financial effects of a business combination. The company adopted SFAS
141R as of January 1, 2009 and the adoption had no material impact on the company’s financial position, results
of operations or cash flows. SFAS 141R could have a material impact on the company’s financial statements in
future periods if the company completes significant acquisitions in the future.
On May 9, 2008, the FASB issued FASB Staff Position APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1)
to provide clarification of the accounting for convertible debt that can be settled in cash upon conversion. The
FASB believed this clarification was needed because the 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 FSP requires 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 had to bifurcate a component of its convertible debt as a component of
stockholders’ equity and will accrete the resulting debt discount as interest expense. The company adopted FSP
APB 14-1 effective January 1, 2009 and as a result the company expects that reported interest expense will
increase and net earnings will decrease by approximately $4,142,000 in 2009. FSP APB 14-1 requires
retrospective application upon adoption and accordingly, amounts for 2008 and 2007 will be restated in the 2009
financial statements. The impact on 2008 and 2007 will be to increase reported interest expense and decrease
reported earnings by $3,695,000 ($0.12 per share) and $2,904,000 ($0.09 per share), respectively.
FS-12