Invacare 2013 Annual Report Download - page 115

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-41
Company was not able to produce a range of cash flows given the lack of clarity on the final terms of the consent decree. The
results of the calculation as of December 31, 2011 confirmed that the carrying value of the North America/HME reporting unit
exceeded its fair value. Pursuant to ASC 360, the Company compared the forecasted un-discounted cash flows of the North
America/HME segment to the carrying value of the net assets, which indicated no impairment of any other long-lived assets. The
Company then conducted a Step II test in which the fair values of all recorded and unrecorded assets and liabilities were calculated
to determine the impairment charge of $7,990,000, which represented the entire goodwill amount for the segment.
In the fourth quarter of 2013, the Company recognized intangible write-down charges of $1,523,000 comprised of: trademarks
with indefinite lives of $568,000, a trademark with a definite life of $123,000, a customer lists impairment of $442,000 and a
developed technology of $223,000 all recorded in the IPG segment and a customer list impairment intangible write-down charge
of $167,000 recorded in the North America/HME segment. The after-tax and pre-tax impairment amounts were the same for each
of the above impairments except for the indefinite-lived trademark impairments in the IPG segment, which were $496,000 after-
tax. The fair values of the trademarks and developed technology were calculated using a relief from royalty payment methodology
which requires applying an estimated market royalty rate to forecasted net sales and discounting the resulting cash flows to
determine fair value. The fair value of the customer lists were calculated using an excess earnings method, using a discounted
cash flow model. Estimated cash flow returns to the customer relationship were reduced by the cash flows required to satisfy the
return requirements of each of the assets employed with the residual cash flow then discounted to value the customer relationship.
The write-down charges were the result of decisions to exit certain businesses as well as lower than anticipated sales.
During the fourth quarter of 2012, the Company recognized intangible write-down charges of $773,000 comprised of a
trademark and developed technology impairments of $279,000 and $398,000, respectively, in the IPG segment and a patent
impairment of $96,000 in the North America/HME segment. The fair values of the trademark and developed technology were
calculated using a relief from royalty payment methodology which requires applying an estimated market royalty rate to forecasted
net sales and discounting the resulting cash flows to determine fair value. The patent intangible asset was impaired as the intellectual
property was deemed no longer viable and is no longer being used.
In the fourth quarter of 2011, the Company recognized intangible write-down charges of $1,761,000 comprised of: customer
list impairment of $625,000 in the IPG segment, customer list impairment of $508,000 in the North America/HME segment,
indefinite-lived trademark impairment of $427,000 in the European segment and an intellectual property impairment of $201,000
in the Asia/Pacific segment. The fair value of the customer lists were calculated using an excess earnings method, using a discounted
cash flow model. Estimated cash flow returns to the customer relationship were reduced by the cash flows required to satisfy the
return requirements of each of the assets employed with the residual cash flow then discounted to value the customer relationship.
The fair value of the trademark was calculated using a relief from royalty payment methodology which requires applying an
estimated market royalty rate to forecasted net sales and discounting the resulting cash flows to determine fair value. The intellectual
property intangible asset was impaired as the intellectual property was deemed no longer viable and is no longer being used.
The fair values of the Company's intangible assets were calculated using inputs that are not observable in the market and
included management’s own estimates regarding the assumptions that market participants would use and thus these inputs are
deemed Level III inputs in regards to the fair value hierarchy.
Business Segments
The Company operates in four primary business segments: North America/Home Medical Equipment (North America/
HME), Institutional Products Group (IPG), Europe and Asia/Pacific.
The North America/HME segment sells each of three primary product lines, which includes: lifestyle, mobility and seating
and respiratory therapy products. IPG sells or rents long-term care medical equipment, health care furnishings and accessory
products. Europe and Asia/Pacific sell product lines similar to North America/HME and IPG. Each business segment sells to the
home health care, retail and extended care markets.
The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes
for each reportable segment. The accounting policies of each segment are the same as those described in the summary of significant
accounting policies for the Company’s consolidated financial statements. Intersegment sales and transfers are based on the costs
to manufacture plus a reasonable profit element. Therefore, intercompany profit or loss on intersegment sales and transfers is not
considered in evaluating segment performance except for Asia/Pacific due to its significant intercompany sales volume relative
to the segment.