Invacare 2007 Annual Report Download - page 71

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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.
Reclassifications: The company reclassified $1,005,000 from other long-term obligations to additional
paid-in-capital as of January 1, 2005 to properly reflect deferred compensation on the Consolidated Balance
Sheet and Consolidated Statement of Shareholders’ Equity. Certain lines of the Consolidated Statement of Cash
Flows were also reclassified in 2006 and 2005 to conform to the presentation for 2007, including the proper
presentation of the provision for stock option and award expense, and the changes increased net operating cash
flows by $717,000 and $881,000, respectively, for 2006 and 2005. Reclassifications were made to the company’s
segment disclosures including reclassification of segment earnings (loss) before income tax amounts for 2006
and 2005 to be consistent with 2007 presentation of including the impact of the consolidated variable interest
entity in “Other” versus “NA/HME.” The reclassification decreased the loss in NA/HME and increased the loss
in Other by $10,394,000 in 2006 and increased the earnings in NA/HME and the loss in Other in 2005 by
$1,087,000.
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.
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. Machinery and equipment as well as furniture
and fixtures are generally depreciated using lives of 3 to 10 years, while buildings and improvements are
depreciated using lives of 3 to 40 years. Accelerated methods of depreciation are used for federal income tax
purposes. Expenditures for maintenance and repairs are charged to expense as incurred.
FS-7