Invacare 2012 Annual Report Download - page 69

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the increased uncertainty with the company’s forecasted cash flows for the reporting unit. The risk premium
adjustment was calculated by the company by considering the decline in the company’s stock price as well as the
company’s EBITDA multiple. The premium adjustment was made as the company was not able to produce a
range of cash flows given the lack of clarity on the final terms of the consent decree. The results of the
calculation as of December 31, 2011 confirmed that the carrying value of the NA/HME reporting unit exceeded
its fair value. Pursuant to ASC 360, the company compared the forecasted un-discounted cash flows of the NA/
HME segment to the carrying value of the net assets, which indicated no impairment of any other long-lived
assets. The company then conducted a Step II test in which the fair values of all recorded and unrecorded assets
and liabilities were calculated to determine the impairment charge of $7,990,000, which represented the entire
goodwill amount for the segment.
While there was no indication of impairment in 2012 related to goodwill for the Europe or IPG segments, a
future potential impairment is possible for these segments should actual results differ materially from forecasted
results used in the valuation analysis. Furthermore, the company’s annual valuation of goodwill can differ
materially if the market inputs used to determine the discount rate change significantly. For instance, higher
interest rates or greater stock price volatility would increase the discount rate and thus increase the chance of
impairment. In consideration of this potential, the company reviewed the results if the discount rate used were
100 basis points higher for the 2012 impairment analysis and determined that there still would not be an indicator
of potential impairment for the Europe or IPG segments.
The company’s intangible assets consist of intangible assets with defined lives as well as intangible assets
with indefinite lives. Defined-lived intangible assets consist principally of customer lists, developed technology,
license agreements, patents and other miscellaneous intangibles such as non-compete agreements. The
company’s indefinite lived intangible assets consist entirely of trademarks.
The company evaluates the carrying value of definite-lived assets whenever events or circumstances
indicate possible impairment. Definite-lived assets are determined to be impaired if the future un-discounted cash
flows expected to be generated by the asset are less than the carrying value. Actual impairment amounts for
definite-lived assets are then calculated using a discounted cash flow calculation. The company reviews
indefinite-lived assets for impairment annually in the fourth quarter of each year and whenever events or
circumstances indicate possible impairment. Any impairment amounts for indefinite-lived assets are calculated as
the difference between the future discounted cash flows expected to be generated by the asset less than the
carrying value for the asset.
During the fourth quarter of 2012, the company recognized intangible write-down charges of $773,000
comprised of: trademark impairment of $279,000 and developed technology impairment of $398,000 in the IPG
segment and a patent impairment of $96,000 in the NA/HME segment. The after-tax and pre-tax impairment
amounts were the same for each of the above impairments except for the trademark impairment in the IPG
segment which was $204,000 after-tax.
As a result of the company’s 2011 intangible impairment review, the company recognized intangible write-
down charges of $1,761,000 comprised of: customer list impairment of $625,000 in the IPG segment, customer
list impairment of $508,000 in the NA/HME segment, indefinite-lived trademark impairment of $427,000 in the
Europe segment and an intellectual property impairment of $201,000 in the Asia/Pacific segment. The after-tax
and pre-tax impairment amounts were the same for each of the above impairments except for the indefinite-lived
trademark impairment in the Europe segment which was $320,000 after-tax.
The fair value of the customer lists were calculated using an excess earnings method, using a discounted
cash flow model. Estimated cash flow returns to the customer relationship were reduced by the cash flows
required to satisfy the return requirements of each of the assets employed with the residual cash flow then
discounted to value the customer relationship. The fair value of the trademark and developed technology was
calculated using a relief from royalty payment methodology which requires applying an estimated market royalty
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