Invacare 2013 Annual Report Download - page 62

I-56
In 2011, the results of the Company's Step I annual impairment test indicated a potential impairment in the Asia/Pacific
segment. As a result, the Company completed a Step II impairment test for this segment. Pursuant to ASC 360, the Company
compared the forecasted un-discounted cash flows of the Asia/Pacific segment to the carrying value of the net assets, which
indicated no impairment of any other long-lived assets. As part of the Step II test, the Company calculated the fair value of all
recorded and unrecorded assets and liabilities to determine the goodwill impairment amount. As a result of reduced profitability
in the Asia/Pacific segment in the fourth quarter of 2011, uncertainty associated with future market conditions, and based on the
Step II calculated results, the Company recorded an impairment charge related to goodwill in the Asia Pacific segment of
$39,729,000 in the fourth quarter of 2011, which represented the entire goodwill amount for the segment.
In December 2011, the FDA requested that the Company agree to a consent decree of injunction at the Company's corporate
facility and its wheelchair manufacturing facility in Elyria, Ohio, the then proposed terms of which would require the suspension
of certain operations at those facilities until they are certified by the Company and then determined by the FDA to be in compliance
with FDA quality system regulations. In accordance with ASC 350, a significant decline in the Company's stock price and market
capitalization, as occurred following the announcement of the consent decree, should be considered as indicators of possible
impairment that would require an interim assessment of goodwill for impairment.
As a result of the potential impact of the FDA consent decree, the Company updated the assumptions and variables in its
DCF model as of December 31, 2011 in regards to the North America/HME segment, the segment primarily affected by the consent
decree, and factored in a 230 basis point risk premium to the discount rate used to reflect the increased uncertainty with the
Company's forecasted cash flows for the reporting unit. The risk premium adjustment was calculated by the Company by considering
the decline in the Company's stock price as well as the Company's EBITDA multiple. The premium adjustment was made as the
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.
While there was no indication of impairment in 2013 related to goodwill for any segment with goodwill, a future potential
impairment is possible for any of the Company's segments should actual results differ materially from forecasted results used in
the valuation analysis. Furthermore, the Company's annual valuation of goodwill can differ materially if the market inputs used
to determine the discount rate change significantly. For instance, higher interest rates or greater stock price volatility would increase
the discount rate and thus increase the chance of impairment. In consideration of this potential, the Company reviewed the results
if the discount rate used were 100 basis points higher for the 2013 impairment analysis and determined that there still would not
be any indicator of potential impairment for the segments with goodwill which are Europe and IPG.
The Company's intangible assets consist of intangible assets with defined lives as well as intangible assets with indefinite
lives. Defined-lived intangible assets consist principally of customer lists, developed technology, license agreements, patents and
other miscellaneous intangibles such as non-compete agreements. The Company's indefinite lived intangible assets consist entirely
of trademarks.
The Company evaluates the carrying value of definite-lived assets whenever events or circumstances indicate possible
impairment. Definite-lived assets are determined to be impaired if the future un-discounted cash flows expected to be generated
by the asset are less than the carrying value. Actual impairment amounts for definite-lived assets are then calculated using a
discounted cash flow calculation. The Company reviews indefinite-lived assets for impairment annually in the fourth quarter of
each year and whenever events or circumstances indicate possible impairment. Any impairment amounts for indefinite-lived
assets are calculated as the difference between the future discounted cash flows expected to be generated by the asset less than
the carrying value for the asset.
During 2013, the Company recognized intangible write-down charges of $1,523,000 comprised of: trademark impairment
of $691,000, customer list impairment of $442,000 and developed technology impairment of $223,000 all recorded in the IPG
segment and a customer list impairment 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.
As a result of the Company's 2012 intangible impairment review, the Company recognized intangible write-down charges
of $773,000 comprised of: trademark impairment of $279,000 and developed technology impairment of $398,000 in the IPG
segment, and a patent impairment of $96,000 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 trademark impairment in the IPG segment which was $204,000
after-tax.