Invacare 2011 Annual Report Download - page 79

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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
estimated $11.0 billion worldwide market for medical equipment and supplies used in the home based upon the
company’s 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 and
its wholly owned subsidiaries. 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.
Inventories: Inventories are stated at the lower of cost or market with cost determined by the first-in,
first-out method. Market values 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 5 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. Amortization of assets
under capital leases is included in depreciation expense.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. An 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 Intangibles—Goodwill and Other, ASC 350, goodwill
and indefinite lived intangibles are subject to annual impairment testing. For purposes of the goodwill
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. Intangibles assets are also reviewed for impairment by estimating forecasted cash
flows and discounting those cash flows as needed to calculate impairment amounts. In the fourth quarter of 2011,
the company recorded goodwill impairment charges of $39,729,000 and $7,990,000 related to the Asia/Pacific
and North America/Home Medical Equipment (NA/HME) segments, respectively, and intangible asset
impairment amounts of $625,000; $508,000; $427,000 and $201,000 were recorded for the IPG, NA/HME,
Europe and Asia/Pacific segments, respectively. These impairments were due to the fact that actual and future
projected cash flows associated with these intangibles were insufficient to justify the carrying values.
FS-7