Invacare 2009 Annual Report Download - page 78

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
income taxes reflect the tax consequences of currently enacted rates for differences between the tax and financial
reporting bases of assets and liabilities. With the exception of two subsidiaries, undistributed earnings of the
company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly with the exception
of the two subsidiaries, no provision for income taxes has been provided for unremitted earnings of these foreign
subsidiaries. The amount of the unrecognized deferred tax liability for temporary differences related to
investments in these foreign subsidiaries that are permanently reinvested is not practically determinable. The
company has established a deferred tax liability of $3,500,000 for the unremitted earnings of the two subsidiaries
for which the company intends to remit earnings when available under local statutory laws.
Derivative Instruments: In March 2008, SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities—an amendment of FASB Statement No. 133 (SFAS 161) as codified in Derivatives and Hedging, ASC
815, was issued which requires qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative agreements. The company adopted SFAS
161 effective January 1, 2009.
ASC 815 requires companies to recognize all derivative instruments in the consolidated balance sheet as
either assets or liabilities at fair value. The accounting for changes in fair value of a derivative is dependent upon
whether or not the derivative has been designated and qualifies for hedge accounting treatment and the type of
hedging relationship. For derivatives designated and qualifying as hedging instruments, the company must
designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge,
or a hedge of a net investment in a foreign operation.
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.
Foreign Currency Translation: The functional currency of the company’s subsidiaries outside the United
States is the applicable local currency. The assets and liabilities of the company’s foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates. Revenues and expenses are translated at monthly
weighted average exchange rates. Gains and losses resulting from translation are included in accumulated other
comprehensive earnings.
Net Earnings Per Share: Basic earnings per share are computed based on the weighted-average number of
Common Shares and Class B Common Shares outstanding during the year. Diluted earnings per share are
computed based on the weighted-average number of Common Shares and Class B Common Shares outstanding
plus the effects of dilutive stock options and awards outstanding during the year. Diluted earnings per share can
potentially be impacted by the convertible notes should the conditions be met to make the notes convertible or if
average market price of company stock for the period exceeds the conversion price of $24.79.
Defined Benefit Plans: The company’s benefit plans are accounted for in accordance with Compensation-
Retirement Benefits, ASC 715 which 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.
FS-10