Invacare 2013 Annual Report Download - page 112

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-38
The effect of derivative instruments on the Statement of Operations and Other Comprehensive Income (OCI) was as follows,
net of tax (in thousands):
Derivatives in ASC 815 cash flow hedge
relationships
Amount of Gain
(Loss) Recognized in
OCI on Derivatives
(Effective Portion)
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
Amount of Gain
(Loss)
Recognized in
Income on
Derivatives
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Year ended December 31, 2013
Foreign currency forward contracts . . . . . . . . . $(482) $ 251 $ (76)
Interest rate swap contracts. . . . . . . . . . . . . . . . 443 (139) —
$(39) $ 112 $ (76)
Year ended December 31, 2012
Foreign currency forward contracts . . . . . . . . . $(5,494) $ 3,763 $ 4
Interest rate swap contracts. . . . . . . . . . . . . . . . 54 — —
$(5,440) $ 3,763 $ 4
Derivatives not designated as hedging
instruments under ASC 815
Amount of Gain
Recognized in
Income on
Derivatives
Year ended December 31, 2013
Foreign currency forward contracts . . . . . . . . . $ 72
Year ended December 31, 2012
Foreign currency forward contracts . . . . . . . . . $ 1,159
The gains or losses recognized as the result of the settlement of cash flow hedge foreign currency forward contracts are
recognized in net sales for hedges of inventory sales or cost of product sold for hedges of inventory purchases. In 2013, net sales
were increased by $432,000 and cost of product sold was increased by $703,000 for a net realized loss of $271,000. In 2012, net
sales were increased by $155,000 and cost of product sold was decreased by $3,608,000 for a net realized gain of $3,763,000
compared to a net loss of $250,000 in 2011.
The Company recognized incremental expense of $337,000 and $600,000 in 2013 and 2012, respectively related to interest
rate swap agreements which are reflected in interest expense on the consolidated statement of comprehensive income (loss).
Gains of $72,000 and $1,159,000 were recognized in selling, general and administrative (SG&A) expenses in 2013 and
2012, respectively, on ineffective foreign currency forward contracts as well as foreign currency forward contracts not designated
as hedging instruments that are entered into to offset gains/losses on intercompany trade payables. The gains/losses on the non-
designated hedging instruments were substantially offset by gains/losses also recorded in SG&A expenses on intercompany trade
payables.
Fair Values of Financial Instruments
Pursuant to ASC 820, the inputs used to derive the fair value of assets and liabilities are analyzed and assigned a level I, II
or III priority, with level I being the highest and level III being the lowest in the hierarchy. Level I inputs are quoted prices in
active markets for identical assets or liabilities. Level II inputs are quoted prices for similar assets or liabilities in active markets:
quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant
inputs are observable in active markets. Level III inputs are based on valuations derived from valuation techniques in which one
or more significant inputs are unobservable.