Invacare 2008 Annual Report Download - page 73

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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.
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.
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
value of each reporting unit is estimated by forecasting cash flows and discounting those cash flows using
appropriate discount rates. The fair values are then compared to the carrying value of the net assets of each
reporting unit. No impairments were recognized in 2008 or 2007. As a result of reduced profitability in the NA/
HME operating segment and uncertainty associated with future market conditions, in 2006 the company recorded
FS-7