Invacare 2011 Annual Report Download - page 80

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
In 2010, the company recorded impairment charges, included in amortization expense, of $336,000 and
$248,000 related to intangible assets for the IPG and the NA/HME segments, respectively, as the actual and
future projected cash flows associated with these intangibles were less than what was originally used to value the
intangibles. In 2009, the company recorded impairment charges related to intangible assets for Europe of
$896,000 and NA/HME of $800,000 as the actual and future projected cash flows associated with these
intangibles were less than what was originally used to value the intangibles. See the Goodwill and Other
Intangible Notes to the Condensed Consolidated Financial Statements included in this report for the details of the
calculations and reasons for the impairments.
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 aggregate losses
per policy year 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 other indicators. 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 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 awards and settlements on claims. While actuarial analysis is used to
help determine adequate reserves, the company is responsible 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 or service provided to
unaffiliated customers, risk of loss is passed and title is transferred. Revenue Recognition, ASC 605, provides
guidance on the application of generally accepted accounting principles to selected revenue recognition issues.
Shipping and handling costs are included in cost of goods sold.
Sales are made only 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
FS-8