Invacare 2008 Annual Report Download - page 74

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
impairment charges related to goodwill and an intangible asset in this segment of $294,656,000 and $160,000,
respectively, in addition, an impairment charge of $5,601,000 was recorded related to the intangible asset
recorded associated with NeuroControl, which is included in Other in the segment disclosure, at December 31,
2006.
Accrued Warranty Cost: Generally, the company’s products are covered by warranties against defects in
material and workmanship for various periods depending on the product from the date of sale to the customer.
Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of
sale based upon actual experience. The company continuously assesses the adequacy of its product warranty
accrual and makes adjustments as needed. Historical analysis is primarily used to determine the company’s
warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does
consider other events, such as a product recall, which could warrant additional warranty reserve provision. No
material adjustments to warranty reserves were necessary in the current year. See Current Liabilities in the Notes
to the Consolidated Financial Statements for a reconciliation of the changes in the warranty accrual.
Product Liability Cost: The company’s captive insurance company, Invatection Insurance Co., currently has
a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per
occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The
company also has additional layers of external insurance coverage insuring up to $75,000,000 in annual
aggregate losses arising from individual claims anywhere in the world that exceed the captive insurance company
policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no
assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry
expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual
case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such
valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the
third-party actuary to assist the company in estimating the ultimate reserves. For example, the actuarial analysis
assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by
geographic area and nature of operations for ongoing operations is expected to be very similar to historical
operations with no dramatic changes and that the government indices used to trend losses and exposures are
appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss award settlements
on claims. While actuarial analysis is used to help determine adequate reserves, the company accepts
responsibility for the determination and recording of adequate reserves in accordance with accepted loss
reserving standards and practices.
Revenue Recognition: Invacare’s revenues are recognized when products are shipped to unaffiliated
customers. The SEC’s Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, as updated by
SAB No. 104, provides guidance on the application of GAAP to selected revenue recognition issues. The
company has concluded that its revenue recognition policy is appropriate and in accordance with GAAP and
SAB No. 101.
Sales are only made to customers with whom the company believes collection is reasonably assured based
upon a credit analysis, which may include obtaining a credit application, a signed security agreement, personal
guarantee and/or a cross corporate guarantee depending on the credit history of the customer. Credit lines are
established for new customers after an evaluation of their credit report and/or other relevant financial
information. Existing credit lines are regularly reviewed and adjusted with consideration given to any
outstanding past due amounts.
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