Invacare 2013 Annual Report Download - page 64

I-58
Income Taxes
As part of the process of preparing its financial statements, the Company is required to estimate income taxes in various
jurisdictions. The process requires estimating the Company’s current tax liability, including assessing uncertainties related to tax
return filing positions, as well as estimating temporary differences due to the different treatment of items for tax and accounting
policies. The temporary differences are reported as deferred tax assets and or liabilities. The Company also must estimate whether
it will more likely than not realize its deferred tax assets and whether a valuation allowance should be established. Substantially
all of the Company’s U.S., Australia and New Zealand deferred tax assets are offset by a valuation allowance. In the event that
actual results differ from its estimates, the Company’s provision for income taxes could be materially impacted. The Company
does not believe that there is a substantial likelihood that materially different amounts would be reported related to its critical
accounting policies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February, 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02 or the ASU). ASU 2013-02
requires companies to report, in one place, changes in and reclassifications out of accumulated other comprehensive income (OCI).
The ASU does not change what is required to be reported in OCI. The Company adopted ASU 2013-02 in the first quarter of 2013
with no impact on the Company's Condensed Consolidated Statement of Comprehensive Income (Loss), Balance Sheets or
Statement of Cash Flows. See Accumulated Other Comprehensive Income (Loss) in the Notes to these Consolidated Financial
Statements.
In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405), Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This update requires an entity
to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed
at the reporting date, as the sum of a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-
obligors and b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The update also requires an
entity to disclose the nature and amount of the obligation as well as other information about those obligations. The requirements
of ASU No. 2013-04 are effective on a retrospective basis for interim and annual periods beginning after December 15, 2013. The
Company is in the process of determining the effects, if any, that the adoption of ASU No. 2013-04 will have on the Company’s
financial position, results of operations or cash flows.
In December, 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, and in January,
2013, issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). ASU
2013-01 is intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting
arrangements on an entity's financial position and requires companies to disclose both gross and net information about both
instruments and transactions eligible for offset in the financial position; and to disclose instruments and transactions subject to an
agreement similar to a master netting agreement. The Company adopted ASU 2013-01 in the first quarter of 2013 with no impact
on the Company's Condensed Consolidated Statement of Comprehensive Income (Loss), Balance Sheets or Statement of Cash
Flows. See Derivatives in the Notes to these Consolidated Financial Statements. See Accumulated Other Comprehensive Income
(Loss) in the Notes to these Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to market risk through various financial instruments, including fixed rate and floating rate debt
instruments. The Company does at times use interest swap agreements to mitigate its exposure to interest rate fluctuations. Based
on December 31, 2013 debt levels, a 1% change in interest rates would impact annual interest expense by approximately $161,000.
Additionally, the Company operates internationally and, as a result, is exposed to foreign currency fluctuations. Specifically, the
exposure results from intercompany loans, intercompany sales or payments and third party sales or payments. In an attempt to
reduce this exposure, foreign currency forward contracts are utilized to hedge intercompany purchases and sales as well as third
party purchases and sales. The Company does not believe that any potential loss related to these financial instruments would have
a material adverse effect on the Company’s financial condition or results of operations.
The Company has entered into an interest rate swap agreement to effectively convert a portion of floating rate revolving
credit facility debt to fixed rate debt to avoid the risk of changes in market interest rates. Specifically, an interest rate swap
agreement, as of December 31, 2013, for a notional amount of $12,000,000 through April 2014 was entered into that fixes the
LIBOR component of the interest rate on that portion of the revolving credit facility debt at rate of 0.54% for an effective aggregate
rate of 2.79%.