Invacare 2006 Annual Report Download - page 66

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
Nature of Operations: Invacare Corporation is the world’s leading manufacturer and distributor in the
$8.0 billion worldwide market for medical equipment used in the home based upon our distribution channels,
breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health
care products for the non-acute care environment, including the home health care, retail and extended care markets.
Principles of Consolidation: The consolidated financial statements include the accounts of the company, its
majority owned subsidiaries and a variable interest entity for which the company is the primary beneficiary. Certain
foreign subsidiaries, represented by the European segment, are consolidated using a November 30 fiscal year end in
order to meet filing deadlines. No material subsequent events have occurred related to the European segment, which
would require disclosure or adjustment to the company’s financial statements. All significant intercompany
transactions are eliminated.
Use of Estimates: The consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States, which require management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from
these estimates.
Marketable Securities: Marketable securities consist of short-term investments in repurchase agreements,
government and corporate securities, certificates of deposit and equity securities. Marketable securities with
original maturities of less than three months are treated as cash equivalents. The company has classified its
marketable securities as available for sale. The securities are carried at their fair value and net unrealized holding
gains and losses, net of tax, are carried as a component of accumulated other comprehensive earnings (loss).
Inventories: Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out
method. Market costs are based on the lower of replacement cost or estimated net realizable value. Inventories have
been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on
management’s review of inventories on hand compared to estimated future usage and sales.
In the fourth quarter of 2005, the company changed its method of accounting for domestic manufactured
inventories from the lower of cost, as determined by the last-in, first-out (LIFO) method of accounting, or market to
the lower of cost, as determined by the first-in, first-out (FIFO) method of accounting, or market. The company
believes that this change is preferable because: 1) the change conforms to a single method of accounting for all of
the company’s inventories, 2) LIFO inventory values have not been materially different than FIFO inventory values,
and 3) the majority of the company’s competitors use FIFO.
The change from LIFO to FIFO did not result in any change to the company’s reported Consolidated Balance
Sheets because the inventory valued under LIFO was at current cost. As a result, there was no impact for the change
from LIFO to FIFO on the company’s Consolidated Statement of Operations and Consolidated Statement of
Shareholders’ Equity for all periods presented.
Property and Equipment: Property and equipment are stated on the basis of cost. The company principally
uses the straight-line method of depreciation for financial reporting purposes based on annual rates sufficient to
amortize the cost of the assets over their estimated useful lives. Accelerated methods of depreciation are used for
federal income tax purposes. Expenditures for maintenance and repairs are charged to expense as incurred.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. The asset would be considered impaired when the future net undiscounted
cash flows generated by the asset are less than its carrying value. An impairment loss would be recognized based on
the amount by which the carrying value of the asset exceeds its fair value.
Goodwill and Other Intangibles: In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
(“SFAS No. 142”) goodwill is subject to annual impairment testing. For purposes of the impairment test, the fair
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