Invacare 2007 Annual Report Download - page 99

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Values of Financial Instruments—Continued
Interest Rate Swaps: The company is a party to interest rate swap agreements, which are entered into in the
normal course of business, to reduce exposure to fluctuations in interest rates. The agreements are with major
financial institutions, which are expected to fully perform under the terms of the agreements thereby mitigating
the credit risk from the transactions. The agreements are contracts to exchange floating rate payments for fixed
rate payments without the exchange of the underlying notional amounts. The notional amounts of such
agreements are used to measure interest to be paid or received and do not represent the amount of exposure to
credit loss. The amounts to be paid or received under the interest rate swap agreements are accrued consistent
with the terms of the agreements and market interest rates. Fair value for the company’s interest rate swaps are
based on independent pricing models.
Other investments: The company has made other investments in limited partnerships and non-marketable
equity securities, which are accounted for using the cost method, adjusted for any estimated declines in value.
These investments were acquired in private placements and there are no quoted market prices or stated rates of
return.
The carrying amounts and fair values of the company’s financial instruments at December 31, 2007 and
2006 are as follows (in thousands):
2007 2006
Carrying
Value Fair Value
Carrying
Value Fair Value
Cash and cash equivalents ................................ $ 62,200 $ 62,200 $ 82,203 $ 82,203
Marketable securities ................................... 255 255 190 190
Other investments ...................................... 8,605 8,605 8,461 8,461
Installment receivables .................................. 27,863 27,863 22,887 22,887
Long-term debt (including short-term borrowings secured by
accounts receivable and current maturities of long-term
debt) ............................................... 537,852 556,743 573,126 583,856
Interest rate swaps ...................................... (2,495) (2,495) (435) (435)
Forward contracts ...................................... (78) (78) 1,213 1,213
Forward Contracts: The company operates internationally and as a result is exposed to foreign currency
fluctuations. Specifically, the exposure includes intercompany loans and third party sales or payments. In an
attempt to reduce this exposure, foreign currency forward contracts are utilized and accounted for as hedging
instruments. The forward contracts in 2007 and 2006 were entered into to as hedges of the following currencies:
AUD, GBP, CAD, CHF, DKK, EUR, NOK, NZD, SEK and USD. The company does not use derivative financial
instruments for speculative purposes. Fair values for the company’s foreign exchange forward contracts are
based on quoted market prices for contracts with similar maturities.
The gains and losses that result from the majority of the forward contracts are deferred and recognized when
the offsetting gains and losses for the identified transactions are recognized. The company recognized a gain of
$451,000 in 2007 and losses of $240,000 and $280,000 in 2006 and 2005, respectively, which were recognized in
cost of products sold and selling, general and administrative expenses.
Business Segments
The company operates in five primary business segments: North America/Home Medical Equipment (NA/
HME), Invacare Supply Group, Institutional Products Group, Europe and Asia/Pacific.
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