Invacare 2015 Annual Report Download - page 62

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impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves,
the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving
standards and practices.
Warranty
Generally, the company’s products are covered by warranties against defects in material and workmanship for various periods
depending on the product from the date of sale to the customer. Certain components carry a lifetime warranty. A provision for
estimated warranty cost is recorded at the time of sale based upon actual experience. The company continuously assesses the
adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the
company’s warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does
consider other events, such as a product recall, which could warrant additional warranty reserve provision. See Current Liabilities
in the Notes to the Consolidated Financial Statements for a reconciliation of the changes in the warranty accrual.
Accounting for Stock-Based Compensation
The company accounts for share based compensation under the provisions of Compensation—Stock Compensation, ASC
718. The company has not made any modifications to the terms of any previously granted options and no changes have been made
regarding the valuation methodologies or assumptions used to determine the fair value of options granted and the company continues
to use a Black-Scholes valuation model. As of December 31, 2015, there was $10,535,000 of total unrecognized compensation
cost from stock-based compensation arrangements, which is related to non-vested options and shares, and includes $9,476,000
related to restricted stock awards and $1,059,000 related to non-qualified stock options.
The substantial majority of the options awarded have been granted at exercise prices equal to the market value of the
underlying stock on the date of grant. Restricted stock awards granted without cost to the recipients are expensed on a straight-
line basis over the vesting periods. Performance awards granted are expensed based on estimated achievement of the performance
objectives over the relevant performance award periods.
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
For the company’s disclosure regarding recently issued accounting pronouncements, see Accounting Policies - Recent
Accounting Pronouncements in the Notes to the 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, 2015 debt levels, a 1% change in interest rates would have no impact annual on interest expense as the company
did not have any variable rate debt outstanding. 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 is party to the Amended and Restated Credit Agreement which was originally entered into on January 16,
2015 and matures in January 2018. Accordingly, while the company is exposed to increases in interest rates, its exposure to the
volatility of the current market environment is limited as the company recently entered into its Amended and Restated Credit