Invacare 2008 Annual Report Download - page 84

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other Intangibles—Continued
In accordance with SFAS No. 142, the company reviews intangibles for impairment. For purposes of the
impairment test, the fair value of each unamortized intangible 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 intangible. For amortized intangibles, the forecasted undiscounted cash flows were compared to the
carrying value, and if impairment results, the impairment is measured based on the estimated fair value of the
intangibles. As a result of the company’s 2008 intangible impairment review, there was no impairment to any
intangible assets. As a result of the company’s 2006 intangible impairment review, an impairment charge of
$160,000 was recorded associated with a trade name, which is part of the NA/HME segment and a 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. See Investment in Affiliated Company in the Notes to the Consolidated
Financial Statements included in this report below. The company has recorded a material amount of intangibles
as the result of acquisitions which may become impaired if performance assumptions, primarily related to sales
and operating cash flows estimates, made at the time of originally valuing the intangibles are not achieved.
Investment in Affiliated Company
FASB Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46), which was revised in
December 2003, requires consolidation of an entity if the company is subject to a majority of the risk of loss
from the variable interest entity’s (VIE) activities or entitled to receive a majority of the entity’s residual returns,
or both. A company that consolidates a VIE is known as the primary beneficiary of that entity.
Until the fourth quarter of 2007, the company consolidated NeuroControl, a company whose product is
focused on the treatment of post-stroke shoulder pain in the United States. Certain of the company’s officers and
directors (or their affiliates) had small minority equity ownership positions in NeuroControl. Based on the
provisions of FIN 46 and the company’s analysis, the company had consolidated this investment on a prospective
basis since January 1, 2005 and recorded an intangible asset for patented technology of $7,003,000. The other
beneficial interest holders have no recourse against the company.
In the fourth quarter of 2006, the company’s board of directors made a decision to no longer fund the cash
needs of NeuroControl. Based upon that decision, NeuroControl’s directors decided to commence a liquidation
process and cease operations. Therefore, funding of this investment ceased on December 31, 2006. As a result of
this decision, the company established a valuation reserve related to the NeuroControl intangible asset of
$5,601,000 to fully reserve against the patented technology intangible as it was deemed to be impaired. In the
fourth quarter of 2007, the company recognized a one-time gain of $3,981,000 due to the cancellation of debt
owed by NeuroControl to two third parties. As of December 31, 2007, all operations of NeuroControl had ceased.
FS-18